Things to Consider Before Opening a Second Location for Your Small Business

Find out what you need to know and do before opening additional business sites.

So, your business is doing well during this time of explosive post-pandemic growth. You may think that with things going so well, adding another business location could double your revenue or more.

It’s possible, but it could put your current successful business at risk, which often happens when a company opens a second location.

The decision to expand your business must be taken seriously. There are too many stories of small-business owners who underestimated the resources — financial, time, and more — required to open new work sites.

This article will explain what you need to consider — and steps you must take — before opening a new place to conduct business.

• Have a clear reason for opening a second location.
• Prepare to replicate your current success.
• Plan for your cash flow.
• Don’t lose focus.
• Never allow your company culture to be put at risk.
• Completely understand the new market.
• Strengthen your brand.
• Expand your organization legally and in full compliance with local laws.

Have a clear reason for opening a second location.

Why do you want to open a new business location?

Have you considered your alternatives to doing so?

Some ideas and alternatives:

• Expand to meet customer demand better. Could increasing your e-commerce presence accomplish the same as opening a new location?
• Enter a new market. Would it make more sense to expand your online presence or partner with an existing business in the market you want to do business in? These could be more efficient ways to gain entrance to doing business in a new city, state, or country.
• Improve the prestige of your brand. Of course, opening locations in upscale zip codes could improve the perception of your brand. Might it make more sense to simply upgrade how you present it?
• Getting access to a new talent pool. It’s possible to hire top talent from all over the globe by opening your company up to working with people virtually. The experience of the pandemic has proven this can be a sound way to expand your talent pool.
• Offering an entirely different line of products or services. If you’re considering using your brand to launch a new line of products and services, why not try it out in a current location or online? It could be the proof of concept you need to ensure it’s worth opening a second business location.

Defining your business objectives for expansion early on — and thoroughly exploring simpler and less expensive alternatives to a new business location — will help ensure success.

In short, don’t open a new business space if you can find another less risky path to growth.

Prepare to replicate your current success.

If you want to duplicate your success in another location, you must clearly understand what’s working now. Before opening a new store, office, or other business space, define and document the processes and procedures that make your business work. Just because what you do is effective in one place with your current team, doesn’t mean it will automatically work with other people in an alternative space. Thoroughly documenting your secrets to success will make them easier to pass on to new employees in a new location so they can replicate them. It will also help you identify some of the parts of your formula for success you need to change to be effective in another place.

Plan for your cash flow.

The cash flow for operating two locations is very different from running one. You may gain some efficiencies in areas like marketing, inventory, billing, and bookkeeping. However, some expenses will be doubled, like real estate, payroll, taxes, and certain types of insurance.

Develop realistic projections before opening a second business location. Determine a realistic time frame for your second place of business to generate enough revenue to become profitable. Figure out if you have adequate cash reserves — or access to funding — to keep a second location going until it becomes self-sustaining.

If you have any doubts about your financing, look into your options for small business loans, including real estate financing, term loans, equipment financing, and other types of funding.

Tip: Since you’re a successful and established business owner, you may qualify for financing backed by the Small Business Administration (SBA). SBA loans often come with the best interest rates and terms. You can learn more about them at SBA.gov.

Don’t lose focus.

Opening a new business location comes with many of the same challenges as starting a brand-new company. Serial entrepreneurs find that launching a new store, office, plant, or warehouse charges them up, and they can maintain perfect focus on their new business location and legacy operations.

This may not be the case for all small business owners. Running multiple locations can be exhausting for them, and they start missing things and making mistakes.

It’s crucial to constantly look out for the overall well-being of your enterprise, the new components, and the original ones. Spend too much time and focus on your new business location, and you could jeopardize the one that made you successful in the first place.

If you don’t have the right people and systems in place when you open a new space, you could risk spreading yourself and your management team too thin and doing a disservice to your original location and its customers.

Ask yourself: If you open a second place of business, will you be able to staff it adequately and purchase the equipment you need to increase your management bandwidth? If you’re not 100 percent certain, get the financing you need to do so, or don’t take the risk.

Tip: Updating your business plan is a critical part of deciding whether you can — and should — open a second location. Include updates to your marketing plan and marketing strategies, along with cost and revenue projections. Putting it in writing will help you know for sure if you can operate added business properties.

Never allow your company culture to be put at risk.

Something intangible has made your business successful enough to consider expanding into a new location. It’s likely a combination of your people, company culture, site, and product and service offerings. Your company’s mission and shared values also play a big part.

Before opening a second place of business, talk to the people on your team and customers to figure out what the “secret sauce” is that makes your company a winning one.

Then figure out whether you can replicate the secrets to your success — and your customer experience — in a new place.

There are many ways you can ensure that the culture of your business remains intact — and maybe even grows and improves — in multiple locations. Consider whether you, a partner, or a trusted long-term employee could head up the new office. If this is possible, it could make it much more likely that your company culture could be transferred to a new place.

Develop an employee handbook and training program that includes your company’s mission and values and the proper way to treat customers or clients. Ensure all new employees at all locations get a copy and take this training. Provide regular refresher sessions. It will help ensure a consistent customer experience across all your business locations.

Also, use Zoom, or a similar tool, to hold regular video conferences to bring multiple teams together. If possible, have a company retreat and other joint events at least twice a year to get your team members together face-to-face. Doing these things will help everyone who works for you, no matter where they are, feel like they’re part of the same team

Completely understand the new market.

The biggest mistake small business owners make — whether startups or experienced ones — is not entirely understanding the markets they plan to enter. No two places are alike, even ones just a few blocks apart.

Opening a second location is too costly to do based on a gut feeling or rudimentary market research. Some of the world’s biggest brands, including Coca-Cola, Dunkin, and Target, have failed when attempting to launch new locations or product offerings in novel markets. Don’t let it happen to you.

Always conduct a thorough market analysis to determine whether there is sufficient demand for your product or service in a new location.

• Is there enough traffic?
• Do the people want what you offer?
• Are there already similar service providers or businesses that sell comparable products nearby?
• Is the customer base suitable for your offerings?
• Do the people near the new location reflect your target market?
• Are the demographics right for your products and services? For instance, do the people who live there have the incomes, education levels, and family relationships to be interested in — and be able to afford — what you offer.

If you feel confident about moving into a new location, tailor your approach to marketing and sales to fit the unique characteristics of the market.

Strengthen your brand.

Your business may have gotten as far as it has through an instinctual shared sense of your brand. That won’t be good enough when you have multiple business sites. Clients and customers will expect the same experience whenever they do business with you. You also lose some of the power of having multiple locations if they aren’t branded alike.

Before moving ahead and opening a second location, develop a complete written branding document. It should cover all aspects of your client or customer experience, including décor, signage, logo and imagery use, typefaces, key messages, dress requirements, web design, packaging, and more. It’s the only way you’ll be able to maximize your investment in a second, third, and more locations.

Expand your organization legally and in full compliance with local laws.

Don’t forget to do your compliance-related due diligence.

Whether your second location is in a new part of your city, a different metro, state, or even a new country, ensure that you can legally offer your products or services. Follow local regulations and zoning rules. Also, make sure the new location is compliant with tax and legal rules. Select a business structure that’s right for a multi-site business. (This could include partnerships, LLCs, or corporations.) Always work with a lawyer and financial advisor experienced in your industry and the area you want to move into while opening an additional location. It will help ensure you get everything right.

Tip: Get professional support whether you’re buying office or manufacturing space, leasing a new store, or renting a warehouse or garage. All types of businesses face risks unique to them that require professional advice and support.

The final word about opening a second business location.

Expansion can be one of the most potent ways to grow a business. However, it’s also inherently risky. You need to do your due diligence and follow the guidance in this article to reduce risk and increase your chances of success. If you have doubts that you can oversee a new location — or about its viability — hold off on making a move until you feel 100 percent confident. After all, you’ve achieved business success at your first location already. Don’t jeopardize it on a whim.