Sometimes small business owners who have achieved success in their retail business decide to expand. They often do this by opening a second location. The owner of a successful gift shop may decide to open a second gift shop in another part of town.
But it can be dangerous to open a second location. You may harm or even kill your business if you move forward without carefully evaluating your plans.
Develop a Business Plan
Just as someone starting a new business needs a business plan, you need to develop a business plan for your second location. You may think that if you are doing well in one location, you can simply set up the same operation somewhere else and be successful. But opening a second location is more complicated than that.
Many things can go wrong, with unanticipated issues resulting in low sales and significant expense. So research and evaluate what will be different about the second location and plan how you will deal with those differences.
Understand Your Target Market
You need to understand the motivation and behavior of your target market. Be sure you know why your current customers frequent your existing location and where they come from. Consider why potential customers would visit the second location.
Will the second location result in a true expansion of your business by bringing in new customers? Or will it mostly take current customers from your first location? How will you attract customers to the second location without harming your existing business?
Evaluate the Targeted Area
You need to put the same effort into evaluating the targeted area for your second location as you would if you were a startup business. You may have more knowledge and experience to work with now, but you are still moving into uncharted territory for your business.
Research the demographics of the area. Is the population large enough to support the second location? How well does the makeup of the population match the description of your targeted customers?
What type of growth is taking place? Look at both short term and long term population estimates and expected changes in population makeup.
Are there a lot of new businesses coming into the area? Find out what type of economic development plans there are for the area.
Look at the competition near your proposed second location. Evaluate how they might affect potential sales. Are there other businesses nearby that would complement your business? Will they attract the type of customers you need?
Take a look at your current location.
How well does it operate? Do you have systems in place to make sure everything runs smoothly? Can those systems be implemented at the second location?
Even if your sales are growing, that does not mean there is no room for improvement in operations.
Be sure you are doing things right at your existing location before you duplicate the business elsewhere. Don’t take your headaches with you.
Research the Costs
Thoroughly research and evaluate the cost of getting the second location open and the cost of everyday operations.
What operational costs will be different and how will you handle these costs? Is the rent, utilities or other costs higher than at the first location?
Determine if you can improve the overall costs for your company when you open your second location. Are there costs that can be reduced? Will your two locations be able to share some personnel and other costs?
Develop Financial Projections
Use the results of your market research and cost analysis to develop at least two years of profit and loss projections for the second location. Estimate potential sales realistically. Look at month to month cash flow to evaluate cash needs. Is the second location financially feasible?
You also need to look at your financial projections for your existing location. How might the operation of the second location affect the financial performance of the first location?
In summary, don’t assume that a second location will be successful just because you currently have a thriving business. You may do your business more harm than good. Do your research and develop a plan before moving forward.
Your local Small Business Development Center can provide assistance with evaluating a second location for your business.
Connie Edwards is a business consultant with the University of Georgia’s Small Business Development Center. Contact her at 912-651-3200.