Over the last several years we have heard countless stories of Big Retail stores closing and even some companies going out of business. However, according to the National Retail Federation, the overwhelming majority of retailers are actually small businesses, with more than 98 percent of all retail companies employing fewer than 50 people. Perhaps then it is a different story for the small business retailer. In fact, maybe you are actually ready to expand. Here are 7 things to consider before doing so.
1.How healthy is your current business?
Your first location should be in a very good position. Meaning a strong cash flow, a healthy balance sheet and income statement. Hopefully, you are turning away customers, running out of space, or something along those lines. If not, then certainly strive for these things before tackling a second location.
2.Have very clear objectives in place
What is the underlying reason you want to open a second location? Is it to have greater access to talent? Is it for branding or to become global? Is it to penetrate a new market or drive a greater demand for your product or service? The answer to this question along with the previous one should help you in understanding if a second location is right for you in today’s circumstances or not.
3.Duplicate the success from your first location
Document, document, document the systems and process of your current business. If you don’t have proper documentation, then chances are you will not be able to duplicate it in a second location. The method of creating new procedures will ultimately cause you to start from scratch and potentially become stretched too thin and start losing on both ends. Please, take what works well in your current business, write it down so that you, or better yet someone else, can duplicate it at the second location.
4.Detail out the cash flow plan
The number 1 reason businesses fail is because they run out of cash. Sure, you hear about businesses that have horrible products or services or timed the market wrong, but if they had more cash possibly, they could have survived. At any rate, cash is very important and especially so for the second location. Figure out your breakeven using conservative numbers just to be safe. Do you have the funding to cover or will you use excess cash from the first location? The last thing you want is the new location draining cash from the first (profitable) location. On the flipside it is possible to grow to fast as I discussed here.
5.Don’t lose focus on the overall goal
This one is important. Opening a second location is fun and can also become a distraction. As entrepreneurs we like to sometimes control things or at least run things. Keep yourself in check so that you aren’t trying to “run” both locations. If you don’t have the right processes and systems in place, you could end up becoming stretched to thin and lose at both locations.
6.Maintain your business culture
One problem faced by small business owners is how to maintain the culture while growing. You dreamed of growing your business, however, you may find yourself longing for the "good old days" when things were smaller, more intimate, and your core values and culture were more ingrained in the daily life of your one location company. Traditions, communications, keeping core values, hiring practices will all lead to the ability to keep the culture as you continue forth with the second location. As you know culture is extremely vital to your business.
7.Do ample market research
Solve for questions like: Is this market big enough for two locations? How do I expand without cannibalizing my existing location’s customers? Do you have customer’s coming from far away? How much is in online business? You also need to ensure the first location isn’t just hot because of nothing more than the location. Think about traffic in front of your second location. Customer counts, visibility, signage and things along this vein are also important.
It should go without saying, but normally expansion is a great way to drive growth and (hopefully) profits. On the other hand, it can be extremely risky not only to the second location but also the first. By thinking through the 7 topics above, you will certainly increase the chances of survival for your second location. All the best to you and your new location!
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