Patak 1

Lee Patak
Professor Bevill
ENGL 1302.11
14 April 2015
The Effects of Overexpansion
Overexpansion for a business is a greedy decision that usually leads a business down a
path to failure. Countless businesses for numerous years have seen profit and made expansion
their next business move; this decision has led to the downfall of various businesses all over the
world. When the time is right for a business to expand, the decision to start expansion can be
extremely effective; however, when a business is not properly prepared for expansion and
decides to expand in order to create more profit, this decision ultimately hurts the business more
than no expansion at all. In most cases, the cause for overexpansion is greed, while these owners
do not truly understand the effects of overexpansion. The risk taken by a business owner when he
or she over expands is great, and the effects on the business include an income shortfall and
entrance into a new market with new and larger competition, ultimately leading the business to a
dangerous situation.
When a business expands its company, new costs are brought upon the company; and the
overall income summary of the company completely changes. Varying on what the business is,
for a company to expand it will have greater costs from increased amount of employees, along
with an increase in operating costs. Moreover, if a company is opening new locations, the
investment of the property is another cost added to the new income summary. When the
company expands, all of these previously listed costs have to be paid for before any return of
profit from these costs. In the beginning of expansion, it is most likely to be a time loss due to

Patak 2
new costs: In the short term your net income will likely fall due to the up-front costs of
expansion (Fredman). If a company has done its research and is properly prepared for
expansion, this short term fall will be relieved by a return in profit from this expansion and
greater revenue. However, with this short term fall some companies never get back up and
continue to fall and eventually put themselves in a dangerous situation. When expanding the risk
is great but the reward is also; and many business owners are blinded by the possibility of vast
rewards without properly taking account of the risks. With the up-front costs of expansion, the
risk is taken in advance of the reward and therefore puts a business in a bind right away. If the
rewards do not come the costs are still there; and when one is counting on new profits from
expansion to cover these costs, many have to dip into savings and take on loans to cover these
expansionary costs. Many owners that are in a bind from overexpansion have to lessen this
process of expansion and close some aspects of their business: As a result of the tumble in sales
after over expanding, a company often retracts by shuttering its biggest cash draining units
(Peters). When a company is facing overexpansion, extreme measures such as shutting certain
parts of the business down have to be taken. In a time of overexpansion, things will not look
good for a company and in many instances it is too late to recover. When an owner has to dip
into their savings or shut businesses down, it is usually the beginning of a downfall and an
overall killing effect on the company. Overexpansion is not only limited to the downfall of a
company, but it also can include severe debt obtained from these recovery efforts as well. If one
fails to properly project the process of expansion and only takes the possibility of profit into
account, not only could their business fail, but their lives could be put in a vulnerable state as
well.

Patak 3
While a companys profit is affected by the process of overexpansion, many owners fail
to realize that overexpansion also changes the whole dynamics of a businesss market and brings
on new competitors with new challenges. When a business begins to implement an expansion
strategy, the business is essentially stepping into a new scale of the business that has a much
larger spectrum. An owner has to realize that when he or she expands, the activity of the business
will never be the same. This new activity expansion brings on a business creates a significant
alteration in the market where an establishment conducts itself. The enlargement of a business
cordially results in the entrance of a new market that is much larger than previous markets
endured. While a company might experience a vast amount of profit in a smaller market, a bigger
market has no guarantees to produce similar success in profits. When a company enters a larger
market with expansion, the company is not simply entering the same market with a bigger scope;
the company is entering a completely different market with new factors that were not present in
previous markets. Many owners fail to realize the actual difference in markets and how these
differences will affect business activity. With expansion an owner is taking on numerous new
responsibilities and it can be easy for one to forget about the significance of the new market
entered: when a smooth running company of eight to 10 employees quickly grows to a staff of
20 people. Suddenly there are human resources and benefits questions, employ-turnover and
retention challenges. If the owner/operator changes focus to managing these growing pains, who
is overseeing new market and product development (Lewis). Without proper recognition and
planning for the new market a company enters with expansion, an owner can get swallowed up
by the new factors and ultimately allow his or hers company to fall into a financial downfall.
Along with a new market, expansion brings on new competition as well; many operators
of companies fail to stay true to their core values and solely worry about challenging these new

Patak 4
and larger competitors. If a company is just beginning to enter a new market after expanding, the
company is most likely smaller in size compared to the competitors in the market. The belief
many business operators have, is that in order to compete with these larger companies in the
bigger markets, they have to expand the company to match these companies size; this mindset is
completely wrong. Expanding to make a company as large as its competitors guarantees no
advantage in the market: Its not their mass or so-called reach that makes them so attractive.
Rather, factors like imagination, ingenuity, and agility make the difference in achieving a
competitive advantage (Harari). When an owner believes an increase in size will directly result
in an advantage to the competition, the success of the company begins to be measured on a scale
of company size rather than the quality of work and profit. It is vital for an owner to not get
consumed by comparison to company size, but rather focus on the market and keeping the
quality of work as a main objective.
The process of expansion in a business is a decision that should be made only with proper
research and planning. Expansion can prove to be an extremely beneficial decision to a company,
or it can lead a company to a complete downfall. It is essential for a business to realize that if it
oversteps its boundaries and over expands, a dangerous situation is going to be the result. When
a business operator fails to realize the risk of expansion, the business is almost always deemed
for failure. Expansion is an extremely perilous decision; and if one does not take the new
increased operating costs into account, along with a lack of knowledge on the new market
expansion enters the business in, the effects are almost guaranteed to bring failure.

Patak 5

Works Cited
Fredman, Josh. The Effects of Expansion on Net Income and Sales. Chron.com. Hearst
Newspapers, 4 Jan. 2013. Web. 8 Apr. 2015.
Harari, Oren. "Honey, I SHRUNK The Company!." Management Review 87.11 (1998): 39.
MasterFILE Premier. Web. 8 Apr. 2015
Lewis, John S. "How Successful Businesses Survive Boom To Bust Cycles." Inside Tucson
Business 21.58 (2012): 18. MasterFILE Premier. Web. 8 Apr. 2015.
Peters, James. Overexpansion. Nations Restaurant News 36.20 (2002):89. MasterFILE
Premier .Web. 8 Apr. 2015.