You could start up new programs and services. You can start up a new branch in a new location. Or, you can acquire an exisiting business.
One of the best breakout sessions at NAHC (other than mine, :-) ) was presented by Dexter and Steve Braff from the Braff Group. They mixed their typical "growing up brothers back-and-forth humor" combined with solid financial data to give us some real meaty information to consider.
First, Steve identified four specific costs to consider in expanding your business:
- The initial capital outlay
- The loss you may need to absorb
- Lost opportunity costs over time
- Use of senior management time and resources
Then he gave us an expanded view of ROI - Return on Investment. To fully grasp the ROI on your expansion strategy, you need to consider:
- Profits from the new business
- The terminal value of the new business when you exit or sell it
- The value of intellectual or human capital that is accumulated in the business
- Stock price movement
- Arbitrage -- buy low and sell high
- Elimination of barriers to entry (CON, Licensure)
- Allocation of Scarece Resources
Then he outlined the alternatives:
- Start up
- New Program Development
Then brother Dexter came up and ran through several very interesting spread sheets showing the cost of the three alternatives, and the potential return in each of the categories described by Steve.
If you'd like more information on their concepts, go to The Braff Group web site, and then contact Dexter or Steve. I'm sure they'll be happy to send you a copy of their presentation information.