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How to Successfully Open a Second Business Location

Accounting for small businessAccounting for small business
min read
October 3, 2023

You've earned your stripes as a small business owner, and you're enjoying success at your first location. 

Perhaps you're now considering a leap to two to expand your customer base or tap into a new market.

That should mean twice the sales and profit for any entrepreneur, right? After all, another store logically means new customers and more foot traffic. But it's not that easy. Opening a 2nd business location is more than just doubling your space. 

Let's tackle the challenges you can expect to face in your small business and some crucial how-tos to help you open another site successfully.

When to Open a Second Business Location

You should open a second business location if you have strong customer loyalty, are financially stable, and can keep quality high—and more. 

Let's dig into all the reasons so you can figure out if a second location is right for you.

You Have Strong Customer Loyalty

You can't sustain growth without customer loyalty and word of mouth. Happy customers mean you have a successful business model and consistent quality. This can suggest potential success in another location. 

Satisfied clients or loyal customers can also lead to repeat business and positive referrals, which means continuous customer demand and a stable revenue stream for expansion. 

So, how do you know your customers are happy? Gauge this with online surveys like SurveyMonkey and post-service check-ins through emails, texts, or phone calls. 

You can also equip your workers to systematically document feedback or comments during interactions with customers through customer relationship management (CRM) systems. 

You Can Do Better Than Your Competition

Understanding your current competitive landscape can help you determine if the market in your existing site is saturated or not.

Platforms like Google Maps or Yelp can quickly help you identify competitors in your locality. 

Porter's Five Forces is a tool that helps businesses understand their competitive environment. It looks at how many rivals they have, how easy it is for new companies to enter their market, the influence of suppliers and buyers, and the possibility of other products replacing theirs.

Remember to note both direct and indirect rivals over your customer base. For example, don't just look at other coffee shops if you own a coffee shop. Consider fast food joints or bakeries that also serve coffee. Read reviews to see what customers say about the abundance or lack of choices. 

Attending local networking events is another practical move to gain insights into your competitors' strategies. This gives you the opportunity to talk to other business owners and relevant suppliers and capture their perspectives on market trends. You might even discover that some are setting up businesses in other areas, which can validate your decision to expand. 

On the other hand, some competitors may not be doing well. Find out if there are listings of businesses for sale in your industry within the same locale. If you run a plumbing service, for example, keep an eye out for plumbing businesses listed in trade magazines, local newspapers, or online platforms catered to the trades. 

If you're a construction contractor, look for other construction or home improvement businesses on sale as advertised on local trade union boards, construction trade magazines, or community newspapers.

If there are several of them, this can point to market exits due to saturation. 

You've Exhausted All Your Sales Channels

It's typical to think of business expansion in brick-and-mortar or real estate terms. But what if there is an underserved online demographic that you can easily tap into? 

This new market could mean achieving the same growth objectives (or even surpassing them!) at a lower cost than physically opening a 2nd business location. 

So you might want to find out if you've exhausted all channels, like e-commerce sites, digital booking platforms, and B2B portals.  

You Can Stay Consistent

Your brand's reputation hinges on consistency. So, one essential factor to consider is your team's ability to maintain quality from the first location and replicate it in the new area or new business. 

Can your managers handle an additional establishment without being overburdened? Can your current staff train new hires while running your first location? 

Bonus tip: A workforce management platform like Hourly can make onboarding super simple. They send new hire docs to your team members and get them signed—all from their phones. 

A new site might also introduce fresh logistical challenges and inventory management issues for yourself, your suppliers, and other trade partners. 

The distance between branches, traffic patterns, and local regulations could also affect your supply chain and delivery mechanisms. If so, it may be unwise to expand. 

You Can Afford It

Let's say you've answered all the earlier questions in the affirmative. It's time to conduct an even more comprehensive analysis to ensure you don't compromise your existing operations for your new business. 

Analyze cash flow statements, which show your business's ability to pay its bills. Examine balance sheets for insights into assets and liabilities, gauging how much you own—and owe—in the long term.

If you discover that your cash flow isn't strong enough, that can help you decide whether or not to keep your focus on improving your current business.

Or you may need more time or a more robust business plan before opening a second location. 

What Are the Benefits of Opening a 2nd Business Location?

Check out these top competitive advantages of opening an additional branch. 

  • Increased revenue: By expanding into a new city, town, or region, you can tap into a fresh market or customer base. 
  • Provide backup: If an issue comes up at one location—like an infrastructure project blocking access to your first branch—sales at the next outlet in a different city can help counterbalance the losses.
  • Boost visibility: Multiple locations can lead to more brand recognition, which helps you gain more customers throughout your area. For example, when you put two clothing stores on both ends of a city, your brand becomes ingrained in the minds of a larger demographic. This means more people are thinking about and talking about your great store—which can eventually boost your bottom line.
  • Better prices on supplies: Ordering supplies for two sites allows businesses to negotiate better prices due to larger volumes, leading to bulk discounts. This can significantly reduce costs in procurement and directly impact the bottom line. Also, with greater buying power, businesses can establish stronger supplier relationships, potentially gaining priority in order fulfillment. 

Challenges of Opening a New Branch   

No doubt, opening a 2nd business location is an exciting proposition. But this comes with its own set of difficulties, such as:

  • Financial strain: Even if your first store is doing well, setting up a new one might mean looking for more funding or using up saved cash, which can strain your finances. New spots can bring unexpected costs, like meeting different city building codes. Budgeting for these surprises and properly managing your cash flow is key.
  • Need to find and hire great employees: Staffing a secondary branch requires careful hiring and training of new employees. One option is to move a trusted manager (or several of them!) from your original location. However, this could create a gap there. On the other hand, hiring a new management team means you need to teach them your company culture and standards from the beginning. 
  • Logistical issues: As discussed earlier, managing inventory, deliveries, and operations between two sites can introduce complexities. Any inefficiency can lead to added costs or operational snags, not just in your new store but also in your first location.
  • Regulatory differences: Expanding to a new store, particularly in a different city or state, can present unexpected regulatory challenges. Let's dive into those a little more:

Regulations to Keep in Mind

  • Local licensing and permits: Different localities often have distinct requirements for business licenses, permits, and certifications. What sufficed in one city may not be adequate or applicable in another.
  • Different taxes: Tax structures, rates, and deductions can differ significantly. You might not only face different sales, property, or commission taxes, but there could also be region-specific taxes or benefits to be aware of.
  • Employment laws: If hiring for your new site, consider local labor laws covering minimum wage, overtime regulations, workers' rights, benefits, etc.
  • Environmental and zoning regulations: The new locale might have stricter environmental standards or business zoning regulations. For instance, a manufacturing unit might face distinct waste disposal mandates.
  • Health and safety standards: This is especially relevant for businesses in food, healthcare, or industries dealing with hazardous materials. Standards might vary based on regional concerns or historical incidents.

How Do I Expand My Business to Another City?

So, how do you overcome the challenges of starting another store in a different city? Here's a roadmap for a successful launch.

Step 1. Create a Thorough Financial Plan 

Draft a detailed budget that covers initial setup and recurring expenses, potential sales, and projected break-even points. Consider utility and maintenance costs as well as potential future rent increases. Ensure everything fits within your budget. 

Note that different locations can have varying economic cycles. For instance, Miami Beach might see a surge in business during the summer and winter months, while a place like Chicago's city center has consistent year-round traffic. Recognizing these patterns helps in adjusting staffing, inventory, and marketing efforts. This can optimize costs. 

Also, regularly review and adjust this budget as the branch becomes operational, comparing actual costs and revenue with projections. 

Don't forget to ask about localized financial incentives that can help offset some of the expenses. Some regions offer these to attract entrepreneurs. Examples include tax breaks, grants, or subsidized training programs. 

Step 2. Secure Funding

Get the necessary funds. Some viable sources include current business reserves, business loans, credit cards, or investors. Ample cash flow ensures you have a financial cushion for unforeseen expenses. 

Step 3. Make Contingency Plans

Have backup plans—for supplier issues, staff shortages, or other hiccups in day-to-day operations. Maintain a contingency fund to cover unforeseen expenses to make sure you have financial stability during the initial months.

Step 4. Scout an Ideal Site  

Where your new business is located can make or break its success. Evaluate potential sites based on the following: 

  • Accessibility: The additional store should be easily reachable for both customers and employees. Proximity to public transportation and parking availability can greatly influence footfall.
  • Foot traffic: High foot traffic areas can lead to increased sales. But it's not just about numbers; it's vital to ensure that those passing by are actually your target customers. After all, the right crowd matters more than just a big crowd.
  • Competition: Proximity to competitors can benefit some businesses, such as retail stores and restaurants, as it creates a hub that draws in more foot traffic. However, this may also lead to market saturation due to a lack of differentiation and an oversupply of a particular product or service compared to demand.
  • Safety: A safe environment is crucial for attracting new customers and retaining employees. Check local crime rates and general safety conditions.
  • Local labor market: If hiring new employees, consider the local talent pool and wage expectations.

Step 5. Ensure Legal and Regulatory Compliance

Understand regulations, from licenses to zoning and employment regulations. Consider establishing a compliance team or collaborating with a local legal expert for ongoing adherence. This can help foster trust within the community, too.

Step 6. Recruit and Train 

Use local job platforms and your existing network to attract talent.

Once hired, run a solid training program using best practices from your original site plus insights from your new market. 

Step 7. Create Buzz 

To reach your specific audience authentically, advertise on popular local platforms or channels, like local social media groups, regional TV stations, and community events.  

Make sure your ads take into account local tastes and preferences. If you're second location is big on a certain sports team—for example—you might consider some partnership or game-day discount.

Step 8. Optimize Your Inventory and Supply Chain

Identify and collaborate with trusted local distributors or wholesalers with a proven track record in your new area. 

Beyond bulk savings, building relationships with local vendors—be it a celebrated coffee roaster or a community-supported agriculture (CSA) farm—ensures a consistent influx of fresh quality supplies.

Another key strategy is to adopt advanced multi-location inventory management systems. Such user-friendly software can seamlessly connect your establishments, giving you real-time stock visibility. This can help you consolidate purchase orders, leading to volume discounts and potentially better contract terms.

Step 9. Create a Standardized Business Operation Manual

To ensure consistency across multiple stores, create a standardized operations manual. 

Kick this off by documenting every task and procedure, making sure to capture all nuances. 

Next, organize this information into logical sections, ensuring the flow resembles how tasks are performed in reality. It's helpful to incorporate visuals like diagrams to simplify complex steps. 

Before finalizing, get feedback from various team members to make sure you're clear and covering everything.

Step 10. Monitor and Adjust

After the launch, closely monitor the new location's performance. Use employee feedback, sales data, and customer reviews to make necessary adjustments.

Step 11. Get Your Business Insured

Small business owners must protect their investments by ensuring the right insurance coverage. This might include property, liability, workers' compensation, and business interruption insurance. 

Talk to a trusted insurance expert. They'll guide you to the best policies for your needs that will help cover the particular risks for your type of business.

 For example, spoilage insurance would be critical for restaurants, whereas construction companies might prioritize coverage for on-site injuries or equipment damage.

Bonus tip: Get a free workers' comp quote from Hourly. The platform syncs workers' comp directly with your payroll, so your premiums are always spot-on—and you can say buh-bye to those nasty audit bill surprises!

Step 12. Adjust Pricing Strategies if Needed

Depending on the new store's demographics and competitors, you might need to adjust your pricing. This could affect your revenue projections and financial preparations.

Step 13. Review Lease Agreements

A long-term lease with steep rates can become a financial burden if the new site performs differently than expected. 

So you'll want to ensure that your rental or lease terms for your new city branch are favorable. 

To do this, you can check out average rental rates and terms for similar properties on online commercial real estate marketplaces like LoopNet

These often provide detailed listings and rate comparisons. Additionally, consult with local real estate agents or brokers specializing in commercial properties. They can offer insights based on recent transactions and current market trends.

How Do I Manage Several Business Locations Simultaneously?

To manage multiple business locations, you need a good plan. First, use a computer system to see what's happening at all your spots (Hourly can show you real-time labor costs at all your locations). Hire trustworthy people to be in charge of each place. Make sure everyone talks and shares information. 

Train all employees the same way. Check on each location often to see how things are going. And remember, each spot might need different things, so be ready to make changes.

Expand to a Second Location Seamlessly

Opening a second business location can boost profits by reaching new customers and demographics. While that sounds great, it's not always smooth sailing. Costs can pop up, new teams need training, and different cities have their own rules.

But, with careful planning, like picking the right spot, understanding local laws, and getting to know the local scene, these challenges can be managed. Running more than one store or shop also means keeping a close eye on each one and being ready to adjust as needed. 

Taking the leap to expand is a brave step, but with the right approach, it's a step towards success.

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