There is a lot to consider before expanding to a new location. Find out if you're ready to make the jump, or if you're better off sitting tight.
By Tara Remiasz
For successful business owners, the prospect of opening a new location can be both appealing and daunting. You now have more knowledge, more experience and more resources than you did when you opened your first location. However, you probably have less time, more responsibilities and a feeling that there is more to lose, too. Fortunately, opening a second location doesn’t have to feel like a gamble. Sure, there are always uncertainties in the business world, but expansion can be more of a calculated risk than a shot in the dark. Making the right decision is a matter of finding the right opportunity and being in the right position. Here are some pointers to help you decide if you should expand.
Determine If Your Staff Is Prepared
Before investing in a second location, it’s important to remember that you can’t be in two places at once. What’s more, if you plan to be very hands-on at the new location, understand that you may need to delegate some of your responsibilities to your staff. Having good, competent employees that you can trust to solve problems in your absence, then, is key in business expansion.
Just because you can’t be everywhere at once, however, doesn’t mean that you have to be out of the loop. If you decide to open a new location, establish guidelines and tools for measuring how the operation is running. “You develop controls that measure those guidelines without making it too controlled,” says Mike Munz, a retired counselor for SCORE—the U.S. Small Business Administration’s resource partner—who spent 30 years as a Hickory Farms franchisee. Measuring book inventory against physical inventory on a regular basis and keeping track of daily sales are good strategies for staying in touch while you open a new location and on an ongoing basis.Study Your Potential Customer Base
If you have found a location that may be right for expansion, take the time to analyze what is happening with the local population. Two important questions to consider are:
- Are there enough potential customers to support a new location?
- Is the population going to grow?
“What is critical is that you go into a market where there’s support and where there’s room to grow,” says Ken Goldstein, an economist with New York-based business forecasting company The Conference Board. It is very difficult to make a case that your customer base will grow if the local real estate market isn’t growing, he says. For this reason, it is very important to pay attention to what is happening in the local housing market. To do that, evaluate home prices and property values around your prospective location. Try searching your address at Zillow.com, for instance, to pull up data on local property; rising property values are a good indication that a community is growing, while falling property values suggest a community is less capable of supporting new businesses.
Evaluate Traffic Flow
Traffic flow can provide key insights into your company’s potential for success at a new location. Getting a sense of traffic flow sometimes can be as simple as taking a photo of the intersection for the proposed location, and then taking a photo of traffic at the same location six months later, Goldstein says. Of course, you don’t need six months to evaluate traffic flow. If you’re looking for more immediate feedback, consider approaching fellow business owners in the area to ask for their insights. Simply mapping your new location—taking note of your neighbors—will help, too; if you’re located near a large retail or restaurant chain, for instance, you can count on high traffic volume, the overflow from which you’ll no doubt benefit.In addition to traffic volume, you need to analyze the kind of traffic that is passing through. Do the surrounding businesses attract the same people who could become your customers? Consider whether neighboring stores will complement your operation. “You have to look at your business and ask, ‘Is it a destination-point type operation, or does it lend itself better to an impulse buy?” Goldstein says. Also, make sure that you understand your potential landlord’s vision for the area, because a change in his or her strategy will impact your traffic flow.
Consider Cash Flow
It is important to consider your company’s financial ebbs and flows before determining what time of year you should launch a second location. You don’t want to open a new location right after peak season, for instance, because there may not be enough cash flow to sustain the operation, especially in the first six to nine months of business. Try to open the new store during a slow period, instead, so you can work out the kinks. However, ensure that your peak season is not too far away, as you’ll still need to generate the necessary cash flow to sustain your expansion. Munz always tried to open his Hickory Farms stores in October because peak season was in December.