Business is booming at your restaurant or retail store, and you’re considering opening another location. But doing so will require a significant investment. Are you biting off more than you can chew?
To help determine whether or not you’re ready to expand, ask yourself the following questions.
Do I Have Access to Enough Capital to Finance the New Location?
Even if you’ve already worked out a formula for success at your first establishment, opening a second shop is a big, expensive project. You’ll need to cover your shop’s rent or purchase cost, additional inventory, furnishings, employee salaries and various other expenses—some of which probably haven’t even occurred to you yet.
The source of the money is important, too. If possible, pay in cash to avoid interest payments or giving up equity in your company. “Every small businessman is best off to use his own cash flow and to stay away from other people’s money as much as possible,” consultant Adam Hartung told Inc.com. When you seek loans or investments, he says, it’s often difficult to achieve the returns that investors seek.
Is There a Large-Enough Market to Support Another Location?
Just because people are lining up outside your current store doesn’t mean that they will do the same at a new one in a different neighborhood. When considering whether to expand, be sure to pick a location that makes good business sense.
Pay close attention to the demographic data for the area you’re eyeing, and make sure that you find a site that’s far enough away from your current location that it doesn’t simply feed off your existing customer base—unless, of course, you’re launching a concept that substantially differs from the original one.