It is understandable that a successful small business owner would want to expand a profitable enterprise by opening a second location. However, failing to consider the potential disadvantages could be a costly mistake. Consider whether you have enough reliable data to support a decision to open a second location for your business.
Reasons for Opening a Second Location
The desire to boost the revenue for your business is usually the key driver behind the decision to expand. Beyond that, your current location could be operating at peak performance based on the size of your staff and the available space for your facility. Although your customers may enjoy favorable treatment, expansion of your customer base within the limits of your current location could adversely impact the customer experience. Some of your current customers might need to travel a great distance to reach your facility. If a significant number of those customers are located in a specific region, it could be advantageous to choose that area as the second location for your new business.
If you plan to seek financing from external investors, take note of five important prerequisites. Beyond the funding necessary for opening a second location, you might also consider investigating whether the new location would bring adequate demand for your business. If the new location simply shares the same customers with your original facility, it is not cost effective to open another location. While the new location might offer additional comforts and a more pleasant ambience than your flagship location, it may not be profitable unless it attracts an adequate customer base. When you have a chance, become familiar with the key variables that determine your new ventures success.
Does a Second Location Make Sense?
The information supporting your decision to expand your business can come from a variety of sources beyond accounting metrics. Here are six questions to ponder before opening a second location. Other aspects forming the basis for this decision include:
- Can the factors responsible for the success of your current operation exist at a new location, such as a high volume of customer foot traffic, convenient parking, and accessibility via public transportation?
- The presence of other competing businesses in a new area, which could jeopardize your ability to achieve the same degree of success experienced at your flagship location.
- Your ability to provide the same customer experience at a new location.
- Whether your existing business model is an appropriate fit for the new location. For example, you might need to carry an expanded or reduced inventory. It might be necessary to operate with a smaller staff, possibly causing the new location to become less efficient.
Additional Demands on Your Time
A second location brings additional demands on your time, even if you hire and train adequate management staff for the new facility to operate autonomously. If the demands of your business are extreme without opening a second location, you might not want to risk potentially adverse consequences to your physical and mental health by expanding your business. The rationale for your decision to expand your business should include consideration for your own well-being as well as financial and logistical issues.
References & Resources
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.