Eight Questions to Ask Before Opening a Second Location
Business is going so well that you’re thinking about adding another location. Before you plan the ribbon-cutting ceremony, be sure you’ve done all you can to ensure the success of both your existing and new locations. Ask yourself some key questions to get a better sense of whether a new location will actually help grow your business:
- What’s driving your interest in another location? It’s important to articulate specifically how the new location will help your business move toward its long-term goals. Expanding simply because the time seems right isn’t a compelling enough reason to take on the risk.
- How solidly is your current location performing? As management, you’ll find that your time and attention will be diverted while you get the second location up and running. Yet, you’ll need to maintain the revenue your first location is generating — especially until the second one is earning enough to support itself.
- Can you expand in other ways that are less costly and risky? You might be able to boost sales by adding inventory or extending hours at your current location. Another option is to revamp your website or mobile app to encourage more online sales. The investment required for any of these steps would likely be just a fraction of the amount required to open another physical location.
- How strong is the location you’re considering? Just as you did with your first location, you want to make sure the surrounding market is strong enough to support your business. Whether it’s an urban center or a suburban industrial complex, the setting should complement your business. You’ll want to consider proximity to your competitors. Retaining a consultant to prepare a market study of the area may be appropriate.
- How might expansion affect business at both locations? Opening a second location prompts a consideration that didn’t exist with your first: how the two locations will interact. Placing the two operations near each other can make it easier to manage both, but it also can lead to one operation cannibalizing the other. Ideally, the two locations will have strong, independent markets.
- What are the financial issues? You’ll also need to consider the economic aspects. Look at how you’re going to fund the expansion. Ideally, the first location will generate enough revenue so that it can both sustain itself and help fund the second. But it’s not uncommon for construction costs and timelines to exceed initial projections. You’ll want to include extra money in your budget for delays or surprises. There is no substitute for preparing a forecast of both locations based on sound and achievable assumptions.
- What are the tax implications? It’s important to take into account the tax ramifications as well. Certain expenditures may need to be capitalized and deducted over a long period of time. Property taxes in the new location should also be examined.
- Can you duplicate the success of your current location? If your first location is doing well, it’s likely because you’ve put in place the people and processes that keep the business running smoothly. It’s also because you’ve developed a culture that resonates with your customers. You need to do the same at subsequent locations.
Opening another location is a significant step. Your financial professional can help you address these questions to minimize risk and boost the likelihood of success.
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