You did it—not only did you open a store, but it’s booming so much that you’re thinking about opening a second location. A lot of sweat and tears went into opening your first retail shop, and it’s time to apply the lessons learned to your second one.
Opening a second small business location can be an effective way to grow your business and your audience. It can expose you to new markets and be a very rewarding experience. But it’s not easy, nor is it for every business.
To help you weigh whether or not expansion is right for you, we’ve outlined the benefits and risks of opening a second business location. (And if the answer is yes, we’ve also collected a handful of tips to help you succeed.)
How do you know it’s time to open a second business location?
Knowing when to grow or, conversely, when to slow down is critical. Expanding too soon can cause you to exhaust capital or exhaust yourself by stretching resources too thin. But taking the “wait and see” approach can cause you to lose momentum or allow a competitor to outpace you. Here are a few questions to ask to find out if you’re ready.
- Do you have customers coming from farther and farther away? If so, that means you’re no longer just a local neighborhood spot but a sought-after destination. Based on where your long-distance customers are coming from, you might need a second location to accommodate them.
- Does your demand exceed your supply? If you have more business than you can handle, then it may be time for another location elsewhere. Do you regularly sell out of items or have long lines stretching onto the sidewalk? That’s a positive sign that you’ve built a beloved and popular brand. You would benefit from splitting your customers between two locations.
- Do you have sound financial footing? Opening up a second location for your small business can be a massive undertaking that can strain your finances if you’re not prepared. Before seriously considering a new location, make sure you have ample funding to support a second location until it takes off.
- Is there another way to expand? Opening a second location comes with risks that we’ll discuss in a bit. Ask yourself if your growth goals could also be met by extending your hours, hiring more staff, or scaling with an e-commerce channel. And if not, have a clear understanding of why a second location will address your needs. If you’ve grown your business through all available avenues, then the natural next step is a second location.
What are the benefits and risks of opening a second business location?
Doing a thorough risk-benefit analysis here is essential. Every business is unique, and yours may have different vulnerabilities when it comes to opening a second location. Think about how much risk you want to take on and whether the potential rewards are worth it.
Risks you shouldn’t overlook:
- Increased expenses: Seriously run the numbers of what a second location would cost. Think about rent, utilities, insurance, business taxes, renovations, and the additional employees you’ll be adding to your payroll. Small expenses you may not think about, like new signage, can overtake your budget.
- Decreased profit: The natural outcome of your expenses increasing is decreased profit for your business overall—at least in the beginning. A second location can drain your finances for some time before it begins to turn a profit, so be prepared. The new location may also draw too many customers away from your first location.
- Increased burnout: Your business may be in two locations, but you can still be in only one. If you’re the face of your business, then your customers will expect to see you when they walk in. You might exhaust yourself rushing back and forth between two locations and trying to keep the shopper experience the same. This can lead to excessive stress and a less stable daily routine.
Benefits to embrace:
- Increased sales: This is an obvious one and might be what motivated you to pursue a second location for your small business. A second location can equal more shoppers as your products are exposed to a new demographic or a new market.
- Lower production costs: This especially applies if you wish to purchase wholesale items. Having a second location allows you to buy equipment, supplies, or inventory in bulk and unlock the economies of scale. Your costs are spread over a larger amount of goods, decreasing the cost you pay per unit.
- Increased diversification: If you have a second business location that’s successful, then your eggs are no longer in one basket. Having only one location can open you up to financial vulnerability if that location faces trouble. With profit flowing in from your second location, you’re more protected against setbacks.
Tips for opening a second business location
Despite the hurdles and surprises you may face when opening a second location, there are strategies and best practices that can make the process easier. Keep these pointers in mind while you work toward your second location.
- Bring employees from the first location to the second location. Your employees are your biggest asset, and you’ll need to lean on their experience when opening the second location. Have current employees train and onboard the new employees to maintain the same workplace culture and shopper experience.
- Be aware of tax laws that apply to your second location. Think about the tax consequences of opening a second location. Consult with local experts about all the taxes, permits, or licenses that your second location might need to operate.
- Find a point-of-sale system that covers all locations. Any technology you use to run business location number one should also be used at number two, especially when it comes to point-of-sale software. Make sure operational systems can be shared between the two locations.
- Spend time researching the second location. Remember all that location research you did for your first location? You’ll need to do it again. See if it gets solid foot traffic, if it’s on a quiet street, if there’s plenty of parking, if there’s too much competition nearby, and whether your ideal customer spends time in that area.
Opening a second location for your small business can be daunting. But if it’s done right, it can be the start of an exciting new chapter in your entrepreneurial journey. By keeping your business prepared, weighing the pros and cons, and following best practices, you can make an informed decision about whether to open a second location.
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