How can I diversify my business?

How can I diversify my business is a common question asked by directors, shareholders and business owners for a range of different reasons. It may be the next step on the growth strategy or it may be about balancing risk and in the same way as there are a lot of drivers to diversification, there are multiple routes to achieve it.

Spreading the risk

Diversification is not just about growing a bigger business or increasing market share. Increasingly it is a route followed by companies and business owners seeking to spread their risk. If the primary business has a degree of inherent risk associated with it then diversifying can help to mitigate that, providing an additional and alternative source of income. It may be that you can repurpose your existing products, service or skillset to suit the needs of another industry or you may choose to make an investment in an unrelated market to provide separation from the original business. Either way, the risk level is reduced.

Acquisition strategy

Some of the biggest corporations around the world have used acquisition as a means of diversifying their business. Take a look at the likes of Siemens or Mitsubishi for example. Whilst Siemens interests are broadly connected around the theme of electronics (mobile phones to trains) Mitsubishi’s business is far more diverse covering everything from tinned foods to motor cars and aircon systems. Many of the big Japanese corporations have pursued an acquisition strategy and done very well as a result – in some cases being better known for a subsequent investment than the original business!

Exploit a niche in another sector

It’s very easy to forget how you came to be in business in the first place when you run a growing company and start to consider other growth strategies, but as a country the UK has a rich entrepreneurial spirit. Harnessing the entrepreneurialism that got you to where you are today may be the key to your next step. Along your business journey, have you noticed anything that you think could be improved or exploited? In one recent example we had a professional services company as a client and one of the directors had some land. Having been camping elsewhere they identified the opportunity to put their land to use to create an alternative income stream. In doing so, they realised that there was a demand for better online portals through which to book your camping and hey presto, they now have an early-stage offshoot managing camping bookings, not just for their own site, but others too on a paid basis! Entirely different from the original business.

Sweating your assets

One sector that has become particularly good at putting their assets to work as a form of diversification is the agricultural industry. Empty cattle sheds, grain stores and barns have become holiday lets, offices or warehouses and spare land is being turned over to golf courses, private dog walking compounds and camping. As one farmer pointed out ‘It’s more profitable to grow offices than lettuces and a lot less work too!’.

If assets are sat there redundant or no longer supporting your main business, they are costing you money. So, it makes sense that plant, machinery, buildings and land enjoy either a secondary use or are repurposed so that they can generate income.

As you can see, diversifying your business does not necessarily need to mean starting again on something different. There are many routes and options open to you, some needing a little investment, others merely needing time, skills and thinking.

Based on search data to our website, this series of blog posts is designed to answer some of the most common ‘how to’ queries around setting up, running a company and managing your personal and commercial tax affairs. If there is a particular question you would like us to answer, please contact us today. Click here to view all the articles in this series.

This entry was posted on Thursday, 17th June 2021 at 8:36 am and is filed under Business Advice, SME Questions.

Tags: business, diversification, diversify, sectors, spreading the risk