What Is Internal Expansion?

Internal expansion is the process of growing a business through the use of resources within the business, and not involving the use of any type of outside activities to solicit new customers. Growth of this type may come about through handling customer referrals using in-house staff, or making use of company resources to manage the internal financing of opening a new location or expanding existing facilities. The strategies that are used as part of an internal expansion initiative are different from those used as part of external expansion, which relies on the use of strategies and resources outside the ownership of the business. Most companies operate with a limited use of internal expansion, with company owners and managers often finding that a blend of internal and external expansion strategies can often be in the best interests of the firm.

One way to understand how internal expansion works is to consider the need of a business to increase its profits. Internal strategies would involve finding ways to reduce operational expenses without minimizing quality or support to customers, allowing the business to retain more profit on each unit sold. Along the same lines, the company may even expand its customer base by means of referrals provided by current customers. The actual methods will vary, depending on how the company is structured, but each internal expansion strategy would rely upon using resources that are already in-house and considered the holdings of the business to accomplish the tasks at hand.

The same general approach would apply if the internal expansion project had to do with opening a new location of the business. Rather than obtaining financing from a bank or other type of lender, the internal approach would focus on internal financing options, such as funding the project with the use of assets contained in a company building fund. Over time, the revenue stream generated by that new location would be used to replenish the building fund, making it possible for the company to use that internal asset again in the future.

The concept of internal expansion involves about using what is already in-house without attempting to go outside those resources to achieve certain types of goals. This is different from external expansion, which would involve using outside marketing firms, creating an external sales force of resellers, or using different forms of advertising to solicit customers. Along the same lines, the use of external expansion methods for building projects would also be avoided, meaning the company would not seek external financing from banks, investors, or other lenders in order to manage those projects.