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Expanding With a Second Location

Contemplating business expansion? Here are 5 things to help make your decision a little easier.

The following issues must be considered prior to making any decisions about opening a second location:

1. Determine if your business can be duplicated (for example, run without you). If your presence is critical to your business' success, it cannot be expected to operate well without you. One way to test this is to ask yourself, "Does my business know I own it?" If your customers do not insist on doing business directly with you, your business is a candidate for expansion.

2. Measure the strength of your existing shop. Is your current location profitable--generating positive cash flow for you? What are the keys to your current success, and can these factors be transplanted to a new location? For example, are there other specialty shops nearby that help to generate and sustain the traffic of potential customers on which your business relies for its ongoing customer base? What changes from your existing shop could you implement that could be expected to improve the performance of a new location? Does the proposed new location offer access to an even larger pool of potential customers in the new target market? What are the characteristics of your proposed new location that might adversely affect the way your business would operate? For example, is the existing competition strong and well-established? Who would manage your new location, and would there be an adequate supply of qualified potential employees?

3. Perform market research focused on any proposed new locations. Confirm objectively what you believe you already know. Identify potential new target markets, and measure the strength of existing demand as well as current and anticipated competition. Or if adequate demand doesn't currently exist, determine the cost/time and potential effectiveness of any required new marketing efforts designed to create the desired demand. Also, confirm that your advertising medium of choice is available, and at a cost that is within your budget. And don't forget to measure both the strength of your industry as well as the strength of your proposed new local market. Ideally, your market research will include test marketing, including, if possible, pilot test sales of your products and services in the proposed new target market.

4. Be certain that you have prearranged, subject to your final decision, adequate funding for the proposed new location. This may include such sources of funding as loans, outside investors and/or your own contributed capital dollars as well as any applicable trade credit. Remember, you are well-advised never to count on your existing location for any funding; rather, consider the new location a separate business venture.

5. Finally, before making your "go/no-go" decision, consider any appropriate growth alternatives to opening a second physical location. For example, you may be able to grow your business by building a Web site, eliminating the need for considerable funding and the risk associated with opening a physical store. For many businesses, the Internet offers low-cost access to a national market, with large numbers of potential customers. The viability of the Internet marketing medium for your business is a function of your business's ability to successfully and profitably deliver your products and services outside your existing local market.

Keep in mind, your final decision must always be based on verifiable business logic--not merely your desire to duplicate the success of your existing location. In other words, do your homework first, before you decide!

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