10 Oct Think You’re Ready to Open a Second Location?
4 Things You Need to Consider!
Business is booming and for most small business owners, the next logical jump is a second location. You’re doing so well, so why not just find a great location, sign a lease and duplicate what is succeeding?
This may actually be the next best step for your business to take BUT there are some things you need to make sure to consider as you determine this. Eagerly jumping into a lease without carefully mapping out your course can quickly turn down a road of failure. Much worse, many small business owners end up losing their second and original locations because the mistakes of the second end up swallowing the profits of the first.
You have worked hard to get where you are. Be smart and keep ensuring success by carefully plotting your course. This doesn’t mean risks aren’t involved. This is afterall small business ownership we are talking about. And for any entrepreneur, you know that your risk-taking nature is part of what serves to drive the business community and marketplace forward!
I am simply suggesting to look before you leap so that you can protect the success you have and build on this with confidence!
Here Are 4 Things You Need To Consider:
New Location = New Business
There are many things that go along with this principle but the first thing you need to understand is that in the eyes of the government, a new location IS a new business. You need to make sure that you have taken care of the tax paperwork and set up that goes along with your second location. You will need a new tax id, a new business tax license and all the rest! Make sure you check the regulations for the exact area you are planning to open your second location. Get all of your ducks in a row in advance and don’t get caught off guard with a torrent of fees and fines!
New Business NOT Just New Building
As we mentioned above, opening a second location is not just as easy as wrapping up a new building under the current business plan. Since you are opening a new business, you need to make sure you have the systems, procedures and employees to cover it. You need to have a POS system that supports two locations and bookkeeping software that clearly delineates between expenses and income of each business.
Without this individual attention to each, you will lose the ability to quickly identify problems and keep small issues from going unidentified and dragging either of your businesses down. The same way you budget, business plan and manage margins at one location, you will need to do that at the next. Separate systems will ensure that you can manage each wisely and keep each one on track for growth and profitability.
Is the New Income Enough?
Remember all of the start-up fees of your first business? Remember when you were sweating bullets over covering payroll or making rent? Those days are real for almost all small business owners and thankfully, you have made it through! With the new location, you may face those days again. Are you prepared for that?
Maybe you have plans for a line of credit or cash infusion loan to cover the initial start-up phase. But have you planned beyond that? Or are you assuming your sales will quickly pick up and be enough to quickly carry the payments due on those new loans?
Since opening a new location is akin to opening a new business, keep in mind that it will take time to grow into steady sales. Great marketing and brand awareness can definitely serve you well here but you need to be calculated. Check out last weeks post on cash flow projection of a new business and walk through those steps! Do your due diligence and research key performance indicators (KPIs) and other vital stats for businesses in the new area. You want to be prepared for expectations of your new location compared to your old one.
If your current location is successful, you may have enough cash flow to cover some hiccups and bumps along the road for the second location for a time. BUT make sure you think through the busy and slow seasons and plan, plan, plan your cash flow for both locations as best as possible. While these are just projections, you should have enough data to help you make some smart assessments about your current business that can fuel your analysis and ensure the viability of BOTH locations.
Will the New Steal from the Old?
As you are working through your analysis, don’t forget to consider that if your locations are in the same city, you may lose some of your customer base to the new location. They may be a brand loyalist but the new location is much more convenient to them. You have to work hard to build NEW clientele, not just spread out your current base of customers. If you don’t, you will have twice the rent, twice the expenses and labor costs but about the same amount of revenue.
Get smart about utilizing savvy marketing strategies, social media and community events to tap into new pockets of customers for your new location.
You can probably see at this point that planning and information are the key to success when it comes to opening a second location. You are in the trenches every day with your business. Make sure to take time to meet with experts who can help pull you out and give you the 10,000 foot view. Experts like your bookkeeper, proven marketers in your area and business owners who have already succeeded at a second location can offer you vital pieces to your own unique plan for success.