| Due to the global financial situation, some business | | | | situations. |
| owners may be thinking that they should diversify | | | | Seasonal sales. If your business has ups and downs in |
| from their current income streams. This is opposed | | | | sales throughout the year it can be good to have an |
| to selling out. When you diversify, you keep your | | | | alternative source of income that can plug the holes |
| current business running (perhaps in an altered state) | | | | during the down times. |
| and commence a new line of products or services. Is | | | | Marginal benefits in expanding the existing operations. |
| this a good idea? | | | | By analysing your market you may consider that |
| Diversification can sound like a good idea but it does | | | | your existing business has little practical ability to |
| need to be thought through carefully. Really, | | | | expand beyond its current level. This could be for |
| diversifying into another business line should be | | | | various reasons. One reason might be that you |
| treated like commencing a new undertaking from the | | | | consider that the extra effort and cost in increasing |
| start. However, you may have some existing | | | | your market share will equate to, or be greater than, |
| infrastructure and personnel that will assist you. | | | | the extra benefits that you will get from that market |
| Nevertheless, I think it is a good idea to approach | | | | share. |
| the idea as if you were commencing a new business | | | | A great opportunity presents itself. Sometimes an |
| with all the planning and thinking that this entails. | | | | exciting prospect presents itself. You may have just |
| If your enterprise is not currently profitable, | | | | been lucky or you may have been searching for this |
| diversifying may not be the solution. Indeed, it could | | | | opportunity. The availability of great opportunities will |
| make the situation worse. Why isn't your business | | | | only be for a limited time. If you don't seize the |
| currently profitable? Is this just a temporary thing or | | | | opportunity, then someone else will. If you have the |
| is this what you experience most of the time? If you | | | | time and resources, this can be a good reason to |
| are running an unprofitable or low profit business, | | | | diversify. |
| before you launch into another enterprise, you had | | | | The existing enterprise runs very successfully with |
| better find out why the current business is not | | | | little owner input. This is the ultimate goal for the |
| making money so that you don't take some of the | | | | owner of an enterprise. You get to the point where |
| problems into the new products or services that you | | | | you do not need to work in the business, unless you |
| are selling. | | | | choose to. This means you are running a well |
| There is a view that public companies that conduct | | | | systematised operation and the thinking that you |
| several business lines produce a poorer return on | | | | have put into your existing enterprise can be applied |
| shareholders funds than companies that focus on one | | | | to a new one. |
| thing. I don't have any data to back up this | | | | You have surplus capital. I once read that Warren |
| statement but I know of some respected business | | | | Buffett (one of the world's most respected |
| commentators that share that view. Why would this | | | | investors) said that the most important decision that |
| be? It is because the management of the company | | | | a company makes is what to do with its capital. |
| cannot give its full and proper attention to any one | | | | Should it reinvest it or should it return it to its |
| particular business line. Therefore it is mismanaged | | | | shareholders? Theoretically, a company should return |
| and under resourced. | | | | its capital to its shareholders if it believes that it |
| The same problem can arise for a small business. The | | | | cannot obtain a return on the funds in excess of |
| owner or manager is usually time poor and for any | | | | what the shareholders could obtain if they invested |
| new offering to the market that is going to be | | | | funds elsewhere. So, if you have surplus capital, |
| developed, it must be given proper time and energy | | | | should you invest it in another commercial |
| or everything may fail, including the existing | | | | undertaking or should you return it to the owners? |
| operations. | | | | Diversifying can sound like a good idea, but make |
| So when is a good time to diversify? Consider these | | | | sure the conditions are right before you leap into it. |