4 Signs You Should Open a Second Location for Your Small BusinessOctober 26, 2017
As a small business owner, are you finding that after years of hard work, your business is finally starting to take off? If so, that’s great!
Often, small business owners who experience positive results from their first retail location immediately start dreaming about opening another one. However, sometimes they aren’t actually ready to expand their business.
Are you considering opening a second location for your small business? Before rushing out to do so, you should ask yourself if it’s the right time to expand. There are several variables that can determine if expansion is a good option or not.
Here are four important determinants that can help decide when it’s time to open a second location for your small business.
1. Your Business is Doing Well
One of the main factors for determining whether you should open a second location for your business is the state of your business. Your business needs to be good shape before adding another location. This entails having a considerable amount of sales and a surplus of customers, along with a solid projected cash flow.
2. You’ve Run Out of Space and Workers
Of course, every business owner is thrilled when a lot of people are buying their products. On the other hand, it can be frustrating when your products are in high demand, but you’re unable to produce more of them because of a lack of space or staff.
Do you find yourself having to turn away customers who want to buy your products because you’re running out of inventory too quickly? This is another indicator suggesting the need to expand your business and your workforce.
3. You Have the Needed Finances for Expansion
Your business may be doing exceptionally well, but if you don’t have enough money for the additional costs needed for expanding your business, it may not be a good idea. Consider you’ll need to budget for more equipment, extra inventory, and rent expenses. What’s more, you’ll have to increase your workforce, buy more insurance, and pay for licensing fees.
4. Your Physical Presence Isn’t Needed at a Second Location
Before opening up a second location for your business, be sure your physical presence isn’t needed for the success of your new location. In other words, the business at your proposed second location should be able to run smoothly without you having to be there.
If your customers don’t mind doing business with someone other than you, expansion may be a good option. But if this isn’t the case, you may not want to proceed in opening a second business location.
Insurance Coverage Considerations
Expanding a business to a second location can mean making changes in the type or amount of property insurance you need. For example, your new location may be located in an area with a different zip code or have more space than your first building. These are two factors that can affect the amount of property insurance coverage you’ll need.
Keep in mind, you’ll probably need to have insurance coverage for items, such as roofing, signage, and contents of a building. Furthermore, a larger building can mean needing more insurance coverage for additional equipment, furniture, and inventory. When having to make significant investments for equipment, it’s crucial you consult with your insurance agent to determine if you should increase your insurance coverage.
Opening an additional location in the same state isn’t as complicated as opening a new location in a different state. Therefore, be sure to talk to your agent about state regulations, in addition to specific laws and requirements for your proposed location because requirements differ among states. In fact, there can even be different rules for different areas in the same state.
Additional Considerations and Warnings
- Thoroughly research your business market for a projected new location. This entails identifying any new target markets and measuring the strength of your competition.
- Doing market research also means considering the amount of money and time you’ll need to invest for creating a demand for your product.
- Be sure you have enough money in your budget for advertising.
- Consider the distance between your first and second store.
- Ensure that the location of your second store won’t take away from sales from your first one.
Just like when you’re starting a new business, opening a second location requires a lot of thoughtful planning and professional soul-searching. It’s a big risk, but there can also be big rewards if you are successful. If you’re considering an expansion, you might consider revisiting your original business plan—or, if you never laid one out, start laying one out now!