Diversified companies see faster profit growth, BDC study finds

Alberta businesses in the energy sector that have customers in multiple cities are far more likely to be prosperous, according to a study released Monday by the Business Development Bank of Canada (BDC).

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The survey of 998 Albertacompanies with five to 499 employees found that seven in 10of them with clients in more than one city had10 per cent or higher annual revenue growth in the past three years.

Onlythree out of 10companies with clients in just one city saw the same level of revenue growth.

"The message is cleardiversification is a critical strategy for Canadian businesses to succeed in these challenging times," said BDC chief economist Pierre Clroux in a release.

"Business owners who fail to do so may be missing growth opportunities and putting their company under unnecessary risk."

The study also looked at manufacturing and construction companies in Alberta.

BDC says exporting is the most effective diversification strategy for manufacturing companies.

"More than one in four manufacturers that export had 20 per centannual profit growth or higher in the last three years versus just8 per centof those with no regular exports," BDC said in a release.

In the construction industry, firms with multiple product or service lines had the strongest balance sheets, the study found.

"Six in 10such companies achieved10 per cent or higher annual revenue growth over the last three years compared to only three in 10companies that offer only one product or service line," BDC said.

Business consultants with BDC came up with some tips for building a diversification strategy:

• Harness core strengths:Companies should consider howexisting assets (buildings, machinery, staff, expertise) can be used for other purposes.
• Ensure financial stability:Companies shouldn't jeopardize existing business as they try to diversify, and look forthe least costlyand complicated options.
• Address weaknesses: Entrepreneurs should always"stresstest" their business. "For example, they can ask what would happen if they lost their biggest client or faced an economic shock," BDC said.