3 Factors to Consider Before Opening a Second Location

3 Factors to Consider Before Opening a Second Location

When growing a small business, how do you know if you should open a second location? Here are three things to consider.

Growing a small business

Growing a small business involves acquiring new customers, expanding products and services, and finding ways to build long-term relationships with existing customers. For businesses, launching a second store or venue can open up a whole new customer base. However, there are important questions to ask yourself to find out whether this move is right for you.

Jay Dunn owns Jay's Cleaners, a small cleaning business in Rhode Island. Recently, Dunn was considering opening up a second location, but wasn't sure that it was the best use of company resources. Ultimately, the decision came down to three key areas:

1. Evaluate Your Current Business Status

To determine whether you're ready to launch a second location, the first step is to evaluate your current business performance. It's important to ask yourself: Would splitting your resources between different locations strain the company? Consider the following variables:

  • Would you have enough trained and knowledgeable team members to work at multiple locations, or could you hire more staff?
  • Do you have the senior resources or management expertise available to manage multiple locations?
  • Does your underlying infrastructure, from technology to accounting, support the growth of your business?

2. Determine If You Have the Necessary Start-Up Capital

"Often, supporting two locations requires cash flow from one to cover the other," says Dunn. As a business owner, it's important to determine whether you have the start-up capital needed to fund an expansion. It may take some time for your new location to have positive cash flow. Expenses might include rent, payroll costs, investing in equipment, and covering utilities and additional licenses. If your plans require taking revenue from one location to support another, can your overall business model sustain the move? It's important to ensure your original location remains in good financial health and that you're not depleting your overall resources too much.

3. Let Customers Know About the Change

Business owners who are contemplating an expansion need to develop a clear plan to communicate with existing customers. "We rely largely on word of mouth, flyers in the local community and such," says Dunn. "We haven't gotten as much into digital yet, except for email." As a result, he's planning to send his existing customers an email announcement and create new branded brochures, flyers and business cards to advertise the new towns they'll cover. In addition, they're planning to send a regular mailing to customers with discount coupons for referrals.

Growing a small business can be a challenge, and adding a location or new service area can help you expand your reach and attract new customers. Before taking the leap, though, it's important to systematically evaluate your business's current performance and determine whether it can stand up to the stress test of a new location. From adequate management capacity to available cash flow, there are many variables to consider before determining if this is your next right move.