It’s natural to think “grow, grow, grow” when it comes to your business. And a major growth moment for many small enterprises is opening a second location.
This is a significant step, and there are a number of factors to consider. Before sinking money into expansion, ask yourself the following six questions, the first of which is the most important.
1. Why do you want to expand?
“The first question I ask is: Why?” says Jennifer Martin, principal consultant at Zest Business Consulting. “You need to have a compelling reason that you are congruent with at a deep level.”
Understanding your overall goal is critical to staying focused and motivated through what can often be an overwhelming transition, Martin says. Without knowing why you’re expanding the business, it’s difficult to chart a successful path to sustainable growth.
2. Is your first location at its peak?
Once you’ve decided that you’re really, really dedicated to opening a second location, take a hard look at your primary one. Your flagship location should be profitable and reliable, because you’ll probably need to rely on its income until the new site breaks even. Before investing in expansion, come up with a contingency plan based on your current earnings.
3. How are you choosing your second location?
Answering this question requires doing some serious homework. Look for a neighborhood that lacks — and needs — your products or services. After all, you’re trying to find new customers who are similar to the ones you already have. Where are they? They may not be in the first place that comes to mind.
Once you’ve identified where your prospects are, look into what’s required to do business in that neighborhood. What is the average rent price? Is there a sign ordinance? Is parking available? What are crime rates like? Find out.
4. How will you maintain the customer experience?
There’s a reason that your original location is successful: its customer experience. Make sure you duplicate it at the new site.
Martin recommends that small-business owners oversee both locations until the desired customer experience is achieved, after which you can hire a manager to take over one of the locations. “The experience should be seamless for the customer,” she says. “There’s a reason the first location worked that has to do with the company culture at [that] location.”
5. Do you have exportable systems in place?
Donna O’Leary and her husband co-own Ambiance, a San Francisco clothing retailer with four shops. O’Leary found this to be one of the most important factors to consider. “You have think about inventing consistent systems that can be exported to the next location. Anything that will make your business run more efficiently, you should be embracing,” she says.
O’Leary uses the same training system at all of her stores to maintain the level of customer service while allowing employees to “fit” the neighborhood. “Tattoos and piercings definitely work for our Haight-Ashbury location,” she says.
6. How are you going to fund the second location?
The ideal scenario for funding a second location is paying for it yourself (see #2). When that’s not possible, think about where the investment will come from. Before pursuing outside funding, Martin suggests asking yourself whether you would invest that much in someone else’s business.
Calculate your success rate thoroughly, she advises. Then add 35 percent to whatever figure you come with, because no matter how diligently you crunch the numbers, you will always have unexpected expenses.
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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.