Before Opening a Second Location

Five things to consider before you even think about building, buying or renting a second space.

Your business is booming. Your customers are begging for more products and services. Lines are wrapping around the corner. Profits are soaring. And while your first “baby” may be walking and talking, you should slow down, take a deep breath and learn what small business owners should consider before opening a second location.

“Companies get caught up in thinking that the same thing will work in two different locations,” says Randy Moon, president of small business consulting firm RMoon Consulting. “You have to study the area and the demographics to see if there isn’t some product mix or different offerings that would better suit that area and its customers.”

In business, there’s no room for assumptions. To determine whether your company is ready for expansion, take a critical look at these five components.

The processes. Small business owners must have enough processes and systems in place to transfer them to a new team. “When you open a second location, you’re essentially franchising the business,” says “SmallBizLady” Melinda Emerson, author of Become Your Own Boss in 12 Months: A Month-by-Month Guide to a Business That Works. Business functions like staff training, inventory ordering and computing daily sales must be well-documented so the new business can get up to speed smoothly.

The offerings. Your new location must appeal to your new clientele. If you have a casual dining restaurant and you’re going into a more upscale section of town, you should consider spicing up your menu with specialties, investing in more expensive décor and creating an overall feel that reflects the new neighborhood. “You can’t take for granted that if it worked in one location, it’s going to work anywhere,” says Moon.

The team. “Do you have a good lieutenant who can run the first location without cannibalizing the second location?” asks Emerson. It’s not just about building a new location, putting in the inventory and turning on the lights. You must have a leadership team capable of running both businesses.

The second location. When considering a second location, check the surroundings. Look at the traffic patterns, customer demographics, competition and the distance from your first location. For small businesses with less than $4 million to $5 million in annual sales, Moon advises that the new location be no further than across town or at least within an hour of each other. “Problems will crop up. If you can’t get there quickly, things can escalate,” he says.

The financials. “You don’t need to be debt-free in your first location, but you do need to have your finances under control,” says Emerson. That includes paying yourself a salary, paying employees on time, having a business “rainy day” fund, having a 401(k) and full benefits. “Your first business has to be fully functioning so you’re not robbing Peter to pay Paul,” she says.

Bottom line: Don’t let a second location cripple the first. “Opening another location means being financially secure in your first business before expanding to a second one,” says Emerson.

Knowing that your business is protected in the event of the unexpected can give you the peace of mind necessary to run any number of locations. An American Family Insurance agent (Opens in a new tab) can help you craft a policy tailored to your business’s needs and get your mind on bigger and better things.