When does it make sense to open a second location for your business?
When does it make sense to open a second location for your business? What business metrics should you achieve? My business has been picking up, but I don't want to pull the trigger too early!
Hard to say without an understanding of what your business is. There is some very excellent advice here.
If the second location can sustain on its own without taking any resources (materials or human) from your first location and can generate revenue on its own then it might make sense. If your current location is doing well because you are running it, you'll need to find someone to either run this location or the new one. Or find two new people to run each location with you overseeing both.
There are 3 main factors to look at that will help you determine if it makes sense.
1. You have rock solid systems in your business already that are easily duplicated and have proven efficiency and accuracy.
2. The second location has a similar demographic to your first location and demand for your specific business.
3. You are financially healthy to make the move without going into too much debt or causing stress on your bottom line.
Hope this helps. If you would like to discuss further or get more advice, feel free to reach out to me and I am happy to assist.
That is a tough one. I would probably go the route of researching and developing a business plan as if it were opening as a single location and if it can provide the revenue to survive on it's own. It also depends on if you are wanting to open a second location to accommodate the growth in existing customers/clients or to tap into a new geographical area?
It really depends on what your business does as many businesses appear to be in different locations but they just have a virtual office. In this day and age of communication there is no need to have more locations unless you have a business that requires staff on the ground. Sometimes time zones are an issue but that is easily solved by starting staff at different times so you have that covered. There are so many things you can do before you need to open in a second location.
You are very smart to ask this question. This is a very complex decision, and not one to enter into lightly. Many business owners may be tempted to jump into this quickly as business starts to do well without weighing some important factors like:
1) Is the current business activity level sustainable, and for how long?
2) What factors are driving you want a additional location?
3) If it makes sense, how does a new location benefit the business long term?
4) Where would you open a new location and does that market make sense?
5) Will you be diluting your brand or spreading yourself thin?
6) Does this fit with your long-term mission and strategic goals?
7) How does it affect your future if your are wrong? Can you bounce back fast?
8) How will this affect the existing location from a operations and cost perspective?
Also make sure to research the new market you are considering ie. prospect clients, competitors, tax implications, environmental complexity, hiring etc.
Make sure it makes complete sense, and talk to other professionals to seek guidance. This will help you make an informed decision, and do your due diligence before you leap.
I know I've given you many questions to think about, but hopefully they help. This definitely a decision that requires much more work in order to properly assess.
Take care and I wish you all the very best in your business Carrie.
Aside from the location consideration mentioned by Mark, if the average (full business cycle - lows and highs) equals 225% capacity of what a store would need in order to be profitable - then consider a second location. This leaves 112% of ideal profit for each store. From there, you have to manage each store's growth; do the stores borrow business from each other or do they form their own circle of customers.
When you have a proven model for success and are in a position where you can replicate it. Looking at all the successful businesses that have sprouted up all over the country and the world in some cases, the common thread is the ability to prove that what works in one location will work in another. Then you need to decide should I franchise my model, or do it myself.
Simple, but the answers need planning and are complex.
Eight strategic questions:
1. When you can generate enough business to cover costs.
2. There's a big enough market. Y
3. our customers and potential customers can find you.
4. You can find the right employees.
5. How is your business now. Have you looked at the nine P's of marketing (http://nineps.com) and have done a Marketing Audit?
6. Do you need to add a partner or a strategic analysis?
7. Are you too busy now with customers demanding product?
8. Look at how you present your product or service now? Hope this helps get you looking in the right direction.
Supporting what Mark said, if success is due to you then the second location needs to be delayed until it is a system or a process that can be repeated without you. This is a point I make to anyone selling their business as well, the business cant be better with you than without you.
If you feel comfortable with the above, then I ask what do you gain with another location. Double the revenue is not double the profits. You now have more inventory, more payroll, more shrink more demand on your cash supplies. Just make sure its a win.
The answer is not an easy one.
There are a variety of factors that you need to consider when answering this question.
First, are your sales driven by location? In other words if you add a second location will you simply be cannibalizing customers from your current location. And will revenue drop significantly in this location by adding a second. If this is a destination type business the answer could very well be yes. If this is true you have just doubled your operating costs without a corresponding increase in revenue.
The second consideration is that of management complexity. Will you be able to manage both locations effectively. and if not will you be able to hire (and afford) competent management to operate the second location. This point is not an insignificant one. I have seen many examples of this not working.
If the correct management team is not selected and it is still you (the owner) that is driving operations, then whichever location you happen to be at will thrive and the other will be an anchor weighing down your business.
It is also important to establish good systems so that the customer "experience" is the same at either location. This is the franchise model and companies that are successful do this will. Think McDonalds, you know that a Big Mac is a Big Mac regardless of whether you but it in NYC or "Poe Dunk" Arkansas. This is accomplished by having good systems in place and adhering to them rigidly.
I will tell you that you are at the point where many businesses succeed or fail. It is much easier to build a business that you control and in which you are an integral part of the operation than it is to replicate this system successfully without (or with reduced) presence of the founder.
Best of luck in your business.