Introduction
There are a lot of businesses worldwide. These businesses span a variety of sectors and organizational structures. They differ in size from large to small, but in recent years, more business owners have opened group organizations across a variety of industries. Although having many group firms could be challenging, what are the benefits of business expansion for both employers and employees?
Why do business owners want to create group companies?
Many business owners usually expand their businesses to get more profit. Sometimes, a business is expanded as a problem-solving method to beat out competition from other companies.
We are suitable to expand our business in the following situations:
・when increasing the consumption of products and services
・when sales and consumption get stagnant
・when you have available or expected resources and personnel
・when it has been decided that an outside investor will invest in our company
Generally, we can reduce risks and have hope for the future of the company by creating group companies (Allianz, 2021).
Benefits of expanding companies
・Attracting new customers
We can be of interest to new customers by making new products, markets, and services (Allianz, 2021).
・Creating economies of scale
By growing their firms, people may spread their risk and lessen the damaging effects of a single error. Moreover, the cost per customer can be decreased by spreading the cost of conducting business among more businesses and clients (Allianz, 2021).
・Depreciation
Marketing costs can be reduced by receiving discounts for bulk purchases and by expanding and distributing sales methods (Allianz, 2021).
・Increasing market influence
The expansion of the company will bring recognition to more people, which will affect the pricing of the market (Allianz, 2021).
・Increase defense
As businesses expand and new services and products are introduced, they can rely on revenue streams from other companies when some do poorly (Allianz, 2021).
・Tax incentives
There are tax deductions for group companies, so we can reduce the amount of tax we have to pay (Qureshi, 2022).
What is difficult about creating a group of companies?
Disadvantages of expanding companies
・Lack of cash
In order to expand the business, a new site and tools are required. Therefore, we may need to borrow money from financial institutions (Allianz, 2021).
・Increased amount of capital required
The bigger the business, the more manpower, facilities, investment, and so on are required (Allianz, 2021).
・Lack of control
The quantity of work we have to complete rises as our business expands. As a result, the products’ quality declines, staff members’ awareness and motivation drop, and turnover rates rise. Also, it’s possible to harm consumer relationships (Allianz, 2021).
・Difficulty raising funds
Investors also become passive and do not want to invest in companies that are not listed. Therefore, if there is a company in the group that does not do well, investors may leave (Qureshi, 2022).
・Complicated finances
The structure of group companies is often difficult to understand. As such, it may be a little difficult for shareholders and other stakeholders to get a sense of the group’s financial situation (Qureshi, 2022).
Insufficient planning and preparation must be avoided when creating a group company.
Rapid deployment might be dangerous. Numerous elements of the business are under stress, and the pace of business has slowed. Also, inadequate planning has a severe effect on the management and operations of businesses. Individuals must make the necessary preparations, gather the required information and supplies, and launch their enterprises (Allianz, 2021).
What does it take to successfully manage multiple (group) companies?
Expanding your business and having multiple companies has many benefits, but managing them all at the same time can be a real challenge. Here’s how to do it, according to Spencer (2020):
・Cultivate members who can be trusted with work.
When we can’t manage multiple things by ourselves, if we have someone to rely on, we can leave them to that person with peace of mind. Corporate leaders generally prioritize their own relationships and often want to entrust work to people who are passionate about their business. By informing the person in advance that they intend to entrust management to them and having them learn the tricks together, the leader educates team members who are deserving of their own skills.
・Appoint a reporter.
No matter how many firms there are, each one must have a contact person and be aware of all pertinent information, such as its financial standing. Leaders may gather and manage all the information simultaneously by doing this.
・Hold regular meetings.
It is important to let others know you exist. Therefore, you need to make your presence felt by holding regular meetings and letting them know that there are people around you who are always there to help.
・Prioritize human relationships.
Individuals occasionally leave the company. Hence, you must hire a replacement for your subordinate when he quits his job. Also, it might be challenging to make business decisions only on the basis of figures. As a result, sharing more specifics about your business outcomes will be made possible by developing a more interesting and open-ended relationship with your staff.
Conclusion
Many entrepreneurs expand their businesses for the purpose of risk avoidance and company development. They are very good things, but they are very difficult to do well because they require a lot of money and administration. It’s crucial to establish a positive workplace culture for businesses that want to succeed by growing their clientele.
References
Allianz (2021). Advantages and disadvantages of expanding a business | Allianz Trade. [online] Corporate. Available at: <https://www.allianz-trade.com/en_global/news-insights/business-tips-and-trade-advice/advantages-and-disadvantages-of-expanding-a-business.html> [Accessed 17 March 2023].
Qureshi, J. (2022). Group Company Structure: Types, Formation, Advantages and More. [online] Clear House Accountants. Available at: <https://chacc.co.uk/general-blog/group-company-structure/> [Accessed 17 March 2023].
Spencer, J. (2020). How to Manage Multiple Companies at Once (And Still Feel On Top of It). [online] Entrepreneur. Available at: <https://www.entrepreneur.com/growing-a-business/how-to-manage-multiple-companies-at-once-and-still-feel-on/345383> [Accessed 19 March 2023].
