Opening a Second Location? Here's What to Keep in Mind.
Business is booming, so you figure it’s time to take things to the next level: opening up a second location.
Although that might seem simple, expanding your business takes a lot of forethought and preparation. In many ways, it’s like starting a whole new business. If you're evaluating this move yourself, make sure to ask yourself these questions before taking the leap:
1. How is your current business doing?
Hopefully it goes without saying, but your business should be in a good place if you’re considering expansion. That means healthy sales, an overabundance of customers for your one location and a strong projected cash flow.
If you’re running out of inventory, space or staff -- and turning away customers who would otherwise be paying --that’s a good sign a second location could benefit you.
And, importantly, will your first business continue to do well if you start pouring time, money and energy into a second location? It’s not enough to just be doing well . . . your business should be in a stable place of clear success.
2. Do you have the extra money?
Even if your first location is doing well, have you weighed the extra expenses that opening a second location requires?
You'll be footing the bills for more rent, more inventory and equipment, extra advertising to get the word out, payroll for your growing staff, insurance and licensing fees. The list goes on.
Keep in mind that you’ll need to put all that cash up yourself, so make sure you’re doing well enough to afford big costs that probably won’t make returns for months. Expanding too far, especially to other cities, is one of the top three or four reasons why businesses fail, according to some sources. So, be careful not to overextend your funds.
However, don’t forget that a business loan is always an option if you don’t have all that capital on hand, so long as you can prove, with a business plan and strong financials, that a second location will have a solid return on the investment.
3. Have you researched the market?
You can’t ignore the possibility that at least a part of your current business’ success is due to its location.
For example, maybe you’re right next to a few popular long-time hangouts or right off the busiest intersection. These factors could contribute more than you know.
Plus, maybe your ideal second location has more competition or lower demand. And don’t forget about potentially different zoning regulations.
The solution? Do some research. Visit the area, ask local store-owners and regular customers about their habits, take notes and learn about the competition. Also, scope out what people are actually buying -- and what they’re missing.
Consider the distance between your locations. If they’re too close, they might compete with each other. And there might not be enough demand. But if they’re too far from each other, you’ll spend time and money traveling. And running a business long-distance can be costly.
It’s important to make sure that your second location keeps what’s special about your first one, too. What makes your loyal customers come back time and again? What sets your business apart?
At the same time, your new location should reflect any differences in its neighborhood. Are you in a hipper or posher part of town? If so, slightly adjusting the menu offerings or employee dress code could make a difference.
4. Are you ready to delegate?
Sadly, you just can’t be in two places at once . . .
So you’ll need to be comfortable with delegating a whole lot of responsibility -- running one of your business locations -- to someone else.
Maybe that means elevating one of your current employees to a managerial position or hiring someone who has experience in running his or her own store. Either way, don’t forget to adjust your ownership percentages, if need be.
Research shows that seconds-in-command chosen from an existing staff perform better than outsourced managers, since they already know the quirks of your business and its employees. Despite these advantages, it's still important to understand where your new partner will be working.
Generally speaking, you'd be wise to head up the new location yourself, so you can identify any problems early on. However, you might want a second-in-command to run the new spot if that person is more knowledgeable about the area. A local’s intuition always helps.
5. What are the financial and legal implications?
You'll find it useful for down the line if you keep the financials of each location separate. That way, you can monitor the successes and shortcomings of each spot independently to measure what’s working and what’s not.
Also, make sure to follow all regulations regarding a second business location.
Laws vary from state to state: Some let you register the new business separately, while in other states, you can use the same employer identification number (EIN) for all locations. Stay up to date on licenses, permits, workplace posters and all other regulations, too.
Finally, you might need to change from a sole proprietorship to a corporation in order to open a second location (which would require you register for a different EIN). Make sure to research your area’s laws and consult an accountant or lawyer before expanding.
Opening up a second location is exciting. You’re growing your business in a big way. Just plan everything out and act thoughtfully to make sure that second location is a permanent success instead of a temporary growth spurt.