Is your business ready to expand to a second location?

This venture can either make or break your business so it’s wise to consider the points we’ve listed below before putting down the deposit on another premises.

Is your first location profitable?

Good financial footing is essential, if your primary location is profitable and generating a positive cash flow this is a good starting point. As a general rule it’s said that prior to looking to expand you should make sure your company has been generating a profit for at least 6 months. On top of this, the level of profit that you’re making should give you a better insight into whether or not it’s the right time to expand. If your profits are through the roof it’s probably a good indication that you’re doing something right. Be careful though, as short trends can cause profit spikes. Ensure all analysis you do is over the long term and make sure you incorporate any fads or trends in this analysis.

If your first location isn’t profitable then you should probably ask yourself why you want to expand your enterprise as all you will be doing is taking on further debt without the necessary means to service the debt.

Why do you want to expand?

Before you commit to expanding your business, it’s important to base your decision on research or insights which make you confident you are doing the right thing. If your current place of business is turning away paying customers because you simply cannot handle the volume this is a great reason for opening up a second location.

Alternatively, if you’ve done your market research and know that there is a potential gold mine of customers just waiting for your product in a different location this can be a good reason too. In contrast, one of the worst reasons for a planned expansion is ego; if you want to open up a second location just so that you can say you have multiple locations this could lead to problems further down the line.

In addition, there are a number of alternative methods of maximising your business you could try before you take the step of expanding your business,. This includes increasing the number of staff to cope with your current customers or adding new inventory or services to expand on what you already offer and. Alternatively if you haven’t already, moving online can give you access to a massive marketplace of potential customers that may not require

Have you secured necessary funding?

Sourcing funding for your second location can be just as tough as when you were first starting out in the big world of business. It’s wise to treat your new location as a completely separate entity and to not take money from the first to help the second along. This can blur the lines between the two, and if the second one doesn’t take off like the first, you could end up losing it all.

Assuming you follow the rule of not taking money from the original location to fund the second premises, you have two main choices for funding imminent expansion. The first option is to support your new business arm using your own money, injecting finance from your own reserve as you might have done to start the original business. However, this can be difficult sometimes and you may not currently have a large pool of funds to utilise having only just started to see a return from the first business. In this situation loans for small businesses could be your solution. Companies that offer small business loans can advance you the necessary amount to enable you to expand, and in some cases you’ll only have to pay back as you earn.

Location, location, location

Picking the right location for your new place of business is one of the most crucial parts of the process. It’s wise to conduct some market research in your desired area to see if there is a real interest or need in your product or service.

This can be done by asking local business owners whether they often get asked if they provide the product/service that you do or if they can see it complementing the local area. A positive response from this is a good way of getting an idea of the desire in the area, but this isn’t enough on its own to warrant the investment.

A more conclusive way of gauging local need could be conducting a survey of local customers to see if it’s something they would be interested in. This could be achieved by setting up a promotional stand or a ‘pop up shop’ in the local area (with the local authority’s permission) and showcase your product or service and ask people to fill out a small questionnaire in exchange for a taster.

The usual aim of opening up a new location is to add new clientele and revenue streams that you didn’t have access to before. If the new location is too close to the original one you could end up cannibalising your current business and create instability between the two locations, so ensure they are suitably sited to have their own pool of customers. Should you go too far afield though, it could cause you headaches further down the line when trying to manage both locations.

Replicate or innovate?

For your business to be successful enough to warrant opening up a second location then there must be some aspect of your business that customers like. This could be anything from the customer service they received right down to your special signature ingredient if your restaurant: you will need to work out exactly what it was in order to replicate the same experience at your new location.

Should the reason for expansion be that you want to offer something different to what you currently offer, such as offering a fine bakery to complement your existing coffee shop, you should ensure that you use the lessons learned in your original location and apply these to the new one as much as you can as it will give you an immediate advantage.

Starting up a second business location is a massive step for any small business but it can greatly benefit you and your business if it’s done in the correct way. If, after you’ve considered all of the above points and it still makes sense for you, then go for it. Good luck!