Are you considering opening a second business location and you aren’t sure if it’s the right decision for you? Sometimes people think that if you build it, they will come, so it’s only logical to open up more locations for your business.
When your customer base is growing and your first retail store seems to be a hit, it would be logical to want to move forward with expansion. Be sure not to rush into this decision quickly because a second location won’t always guarantee you success like the first one has.
An existing location’s profitability will have no bearing on the success of a new location. Here is a guide to determine if it’s wise to open up a second business location or not.
Consider Opening up a Second Location if your First one is Successful
Your existing store doesn’t have to be extremely successful to consider opening up a second location, but make sure you at least have the operation running well at the first one. You’ll have to run the second location independently of the first so that it can stand on its own. Look at the right insurance provisions, the type of zoning you’re entering, and the employees to support it. Then, consider using your first location as a template to write a new business plan for the second location. Keep the books separate but feel free to use the same vendors or insurance company on both locations.
What is the Market Telling You?
Is your business a very specific niche like repairing musical instruments? This may be your passion, but it has to be something that people need too. If the market isn’t showing a positive trend for your business, it may not be wise to open another location.
It’s only going to be a good decision if you know that people will be driven to shop at your store. Take a look at the market and the trends. Research your competitors by seeing if they are investing in new stores or if many people are visiting their websites. If you see that your business would follow the trends, be sure to move quickly to establish your position before someone else does.
Reliable Person to Run it and Steady Cash Flow
If you are going to open another location make sure that your start-up has a reliable owner to help with its launch. The owner should be at the new location at the early stages to see if any challenges are presenting themselves and to help make it successful from the start. You also may need their local knowledge, so having someone from the area could add to your success.
Be sure that you have a sufficient cash flow so that you aren’t borrowing money from investors with high return rates. Investors typically want a 40% rate of return while banks only need about 10% on a loan.
If you get a loan from the bank and there’s a problem, you’ll go bankrupt. But if you give up ownership to fund a new location and something goes wrong, the bank will be down your neck. If you’re going to borrow money, make sure it’s from someone who isn’t concerned with guidelines and payback and who actually wants to help your business grow.
If there is a demand from your product or service, your first location is doing well and you have a good game plan for a second location, it may be a great time to open up that second location.