Three questions every SME should ask before expanding

For many entrepreneurs, growth is seen as a clear marker of success. However, for South African SMEs, expanding too quickly or for the wrong reasons can slow momentum and dangerously overstretch resources.

Growth shouldn’t be a leap of faith, but rather a strategic move grounded in data, operational readiness, and sound financial planning.

Every business owner wants to grow, but not every business is ready. We’ve seen entrepreneurs double their stock, hire additional staff, or open new branches after just a few strong months - only to find themselves overwhelmed. Growth is exciting, but it’s also costly. Without the right foundation in place, it can unravel the very progress you’ve worked so hard to achieve.

Merchant Capital works closely with entrepreneurs and SMEs to support sustainable growth and has outlined three key questions every small business should ask before committing to expansion.

1. Is there enough consistent demand, and will it grow if you offer more?

Many SMEs mistake a short-term spike in sales for long-term growth. Whether it is a seasonal bump, a tender, or a once-off corporate order, short bursts of revenue can be misleading. Entrepreneurs must look beyond the moment.

We often help clients uncover their average revenue patterns. The data can be surprising. It is not uncommon for a business owner to overestimate growth based on one good quarter, when the longer trend tells a different story.

Consistent customer demand is the first marker of readiness. If your customers are returning, if your base is growing, and if there is a clear appetite for expanded offerings, then it might be time to scale. But this decision should always be rooted in real trends and customer behaviour, not gut feel alone.

2. Can your infrastructure support growth?

Scaling places new demands on people, processes, and technology. Even businesses with strong demand can struggle to deliver if their systems are not built to cope with higher volumes.

Ambition tells you where you want to go. Systems get you there. But scaling puts pressure on every part of your operation. If your team, suppliers, or back-end processes cannot keep up, it is going to show.

SMEs should identify their first bottleneck. It might be obvious, like needing more space. But it could be more subtle, like a manual booking system that cannot handle growing volume.

The key is to plan investments in the right areas at the right time. Not everything needs to be upgraded at once, but weak points must be acknowledged and prioritised. A short-term funding solution can help business owners bridge this transition, providing flexible capital for infrastructure upgrades that support sustainable growth.

3. Can your cash flow handle the growth gap?

Perhaps the most overlooked aspect of expansion is timing. Growth requires spending upfront on stock, marketing, equipment, or new hires, while revenue from that growth often lags behind.

This is what we call the growth gap. Even small delays in customer payments or supplier deliveries can create a cash crunch at a critical time. And one missed salary or supplier payment can hurt your reputation.

To prepare, SMEs should model their cash flow scenarios, cut unnecessary costs in the lead-up to expansion, and consider offering early payment incentives. For many businesses, short-term finance can play a key role in bridging this gap.

Scaling is a strategy, not a gamble

The most successful SME owners do not scale on instinct alone. They look at demand, test their infrastructure, and plan for the financial realities of expansion. They do not chase growth for growth’s sake but prepare for it.

As an SME looking to expand, perfection should not be the expectation. However, you should have a clear sense of potential and a solid strategy to build on.

Nicole Swart, managing director at Merchant Capital

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

BUSINESS REPORT