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How to Effectively Grow a Small Business by Expanding Output

Investing in technology to increase output is the best way forward. R&D tax credits can help jump-start the process.

May 16, 2023

5 Min Read
business growth projections via laptop
Thapana Onphalai/iStock via Getty Images

Paul K. Steck

Smaller companies often face challenges when it comes to growth, and expanding output capacity can be an effective solution. In addressing your company’s needs, you have several choices: Innovate with new products, expand your current customer offerings with complementary products, acquire another company, or simply expand your output capacity. The last option makes the most sense.

Why? For starters, you may not have to enlarge your footprint significantly. In many cases, replacing older technology with newer, often more space-efficient technology either frees up space or simply replaces or optimizes what was already there. Investing in technology to increase output capacity can yield significant long-term benefits for companies. Automating processes and upgrading technology can lead to a reduction in labor costs and an increase in productivity, according to a Forbes article by Serenity Gibbons. In addition, upgrading technology can improve product quality and increase customer satisfaction, leading to repeat business. Companies that adopt advanced technologies and automation can experience significant growth and profitability, according to a report by the World Economic Forum. These companies are more likely to create new jobs and generate higher profits than their less technologically advanced counterparts. By investing in technology to increase output capacity, companies can position themselves for long-term success and remain competitive in their industries.

Other advantages to this approach include a shorter learning curve for your staff since they are already familiar with your existing products. Furthermore, your customer acquisition costs probably will not increase dramatically, since you will be marketing to many of the same verticals as you are doing now.

It's important to note that investing in technology should be done strategically and with careful consideration. Companies should prioritize technology investments that align with their overall business strategy and goals, as noted in a Harvard Business Review article by Jenny Koehler, Paul Leinwand, and Mahadeva Matt Mani. It's also crucial to ensure that employees are adequately trained on new technology to maximize its benefits.

Planning for non-disruptive growth

The real challenge involves planning for growth in a way that will not disrupt current operations or drain your monthly cash flow during the ramp-up period. In most cases, increasing output capacity will prove highly justifiable and beneficial, because you will reap long-term value as a result of the investment you make in both people and technology. You may even position yourself to take on overflow work from other companies that are not capitalized to increase their own output or need to reduce overtime internally.

When planning to expand output capacity, there are several important factors to consider:

  1. Evaluate the current and expected future demand for the products you plan to increase in volume output.

  2. Examine the options of leasing, purchasing, or leasing-to-purchase the technology you are considering investing in. Consult a CPA for advice on tax considerations.

  3. Consider hiring an engineering firm to determine whether cost segregation would apply to the technology you purchase. This allows you to depreciate the equipment sooner and could help offset the expenditure in the short term.

  4. Check out www.grants.gov and look into the US Small Business Administration’s grant programs aimed at businesses engaged in scientific research and technological development — the Small Business Innovation Research Program (SBIR) and Small Business Technology Transfer Program (STTR) — and see if they apply to your business. Several US states offer incentives for investing in new technology. New Jersey is one of them.

Investigate R&D tax credits

Manufacturing companies, in particular, should take advantage of the government’s R&D tax credits—something other types of business may not have. As we invest in our companies, we are researching and developing ways to improve unique processes. The US government is committed to bringing manufacturing back and ensuring its success. In addition, manufacturers should leverage 3D additive technology to gain a competitive edge. It has become more affordable and allows a manufacturer to produce more complex molded parts faster and at a lower cost, often eliminating the need to make costly, time-consuming molds — in short, providing more design freedom. This positions a company to become more competitive as well as improving its products and services.

Beyond the financial considerations, also consider whether the investment in new technology will yield not only more volume but will allow you to pursue larger, higher paying customers that will add to your profitability. If your forward-thinking business plan involves the potential sale of your company, the investment in technology that results in increased output capacity will certainly prove attractive to an acquiring entity. In the event you acquire a partial or total interest in another company, your lenders or investors will also look favorably upon your increased output capacity resulting from a well thought out technology investment.

Investing in technology yields long-term benefits

To sum up, expanding output capacity can be an effective solution for small businesses seeking growth. Investing in technology can yield significant long-term benefits, but it should be done strategically and with careful consideration. Companies should prioritize technology investments that align with their overall business strategy and goals, and ensure employees are adequately trained on new technology. By increasing production capacity, companies can reduce labor costs and improve productivity. Upgrading technology can also improve product quality, leading to increased customer satisfaction and repeat business. Beyond the financial considerations, technology investment can position a company to become more competitive and pursue larger, higher-paying customers. Several US states offer incentives for investing in new technology, and manufacturers also can take advantage of government R&D tax credits.

Isn’t it worth considering?

 

About the author

Paul K. Steck is the president of Exothermic Molding Inc., a third-generation, family-owned specialty plastics manufacturer in Kenilworth, NJ, serving a variety of verticals including healthcare, laboratory sciences, and defense.

 

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