Maybe your restaurant has lines out the door. Or your tax business has identified a primary market in another city. Or your medical practice has more patients than the available space can accommodate. Maybe you have enough money to support the rapid expansion of the business.
Situations like this certainly show that another place can be good.
What should you look for when opening a second location for your business? We'll talk about what to consider, and how to identify the right property.
Opening a second location for your business.
Here are a few questions to ask yourself to get a clearer picture of whether or not an expansion might be wise:
- Does the location of your business limit your ability to serve customers?
- Is there a new market to serve (or are you already serving digitally)?
- Do you have the money needed to expand?
- If not, are you able to earn extra money?
- Can the features that made your first site successful be replicated?
- Do you understand the legal implications of opening a second location?
If you answered yes to three or more of these questions, consider your business a prime candidate for expansion.
Other possible ways to open a second location.
If you haven't already done so, you may need to exhaust all other sales channels before opening a new location. If you rely on brick and mortar sales, you may need to explore ways to meet demand digitally, before opening a new branch of business.
“You can grow your business by building a website, eliminating the need for capital funding and the risk associated with opening a physical store,” according to business growth strategies from Entrepreneur. “For many businesses, the Internet provides cost-effective access to a national market, and a large number of potential customers. The effectiveness of your business's internet marketing strategy is a function of your business's ability to effectively and profitably deliver your products and services outside of your existing market.”
You can expand digital marketing to new areas, increase the efficiency of your fleet, or offer more viewing options for services (think, telehealth, for example).
This requires its own set of considerations (eg, rolling out new warehouses or shipping facilities, having teams manage digital websites and workflows), but may present cheaper, easier, and less risky options for expanding your business.
If you're sure that a new location is the way to go, there's a lot to consider when choosing the right location.
How to find a second location for your small business.
Here are 10 considerations to help you choose the right location and set yourself up for success once you move in:
What you should consider
1. How much will the business cost.
You can't make solid business decisions until you know the price. Don't just focus on physical asset costs—you'll also need to consider utilities and other operating costs. This requires you to have a deep understanding of the costs in your current environment.
If so, you can weigh those numbers against the new location to figure out what you'll be able to catch, and what kind of return you might see.
2. How will you continue what made you successful.
Many entrepreneurs capture something special about their first place of business. Whether it is the location, the environment, the staff, or a combination of many factors, customers are always attracted to that store. Your challenge is to transfer what works to your next location.
This can be difficult, as the details associated with the shop or office will undoubtedly be different from your original one. For this reason, it is more of a translation than a direct transfer. You will need to find a way to successfully integrate the best parts of your business into the new environment.
3. How will you improve on what made you successful.
Don't stop at simply repeating your starting point. This is your chance to transcend the status quo. Look at at least five ways you can increase your performance, by focusing more on customer experience. It is a new beginning in the existing concept.
Opening a new location can be stressful—that's when you run the risk of losing sight of your customers.
You can add new inventory to a new store or offer special promotions. By improving things in your new environment, you will benefit from all your activities.
4. Walking in the area.
Even if your business is primarily driven by advertising or referrals, don't underestimate the importance of foot traffic. The more people that pass through your business, the better. So when choosing a place, look for a place that people care about and visit it regularly. You can get a general idea of foot traffic by simply spending time in a potential area. Alternatively, don't be afraid to visit other business owners in the area and ask them about the foot traffic they experience each month.
5. Traffic in the area.
Another important aspect of your business will be traffic. Will many potential customers drive to your new business location? Will there be too many cars in the area? If so, parking and accessibility can be a problem for you, your employees, and your customers.
This is another opportunity to talk to local businesses and get their input on road conditions. If there are few people driving in the area, or there are traffic problems, be careful to set up shops among them.
6. Understanding the competition.
On the subject of neighboring businesses, it is important to find out what competitors are already established there. This is not just about avoiding setting up your business next to someone who is already doing what you are doing. It's to see how other local businesses are promoting their products or services.
You will never stand out if you don't know where you stand. It is important to find a place where the customer's needs can be met. Maybe there is a business on the same block as yours, but if you can explain why yours will be better at serving customers, you have a stronger chance of success.
7. Networking.
Opening a second place of business is by no means an easy task. Rather than traveling alone, use other businesses and contacts in the local area. This will not only help you gain insider knowledge of your new market, but you will make contacts who can increase your awareness. Even brief conversations with other small business owners can yield strong results, as they continue to grow your business consciously or unconsciously.
A great way to get your foot in the door is to join any business associations in your new area. Each event you attend is another way to gather support for your business and make a few friends along the way.
8. Keeping your eye on the horizon.
Your network will be an excellent source of information about the future of your second business location. What is in store for the region? For example, real estate and transportation projects can be gold mines, as they bring more potential customers to your area.
On the other hand, note that the current state of a potential property is never set in stone. Many small businesses have struggled when unwanted businesses or projects appear around them. The more you know beforehand, the less you'll need to worry about this happening to you.
9. Accounting for logistics.
A new location means you'll need to figure out how to handle shipping and receiving, parking, and a host of other nuances. You can adopt the best practices in your current business environment, but plan that many may need to be retrofitted. It can be helpful to talk to your employees about their unique role and how they would recommend dealing with the new planning methods your second location will require.
10. Rent first, buy later.
There are times when you feel confident buying a second home. Maybe you're already familiar with the area or you've found an opportunity so lucrative that buying isn't a gamble. Most of the time, however, it is recommended that you think about renting first.
This gives you the opportunity to study the area and find solutions to any problems. If things go well, you can always buy in the future. If long-term issues arise, you'll be grateful for the flexibility your rental agreement allows.
Financing your new property.
One popular route for entrepreneurs looking to open a second location is a loan from the Small Business Administration (SBA). These financial products come with interest rates and repayment terms similar to what you would find in the best traditional bank loans.
SBA loan
The SBA is dedicated to helping underserved entrepreneurs, including women and minorities. If you've been rejected in the past and feel like you weren't given a fair shake, you should definitely check out the options this organization has to offer.
Real estate loans
Real estate loans can also be used for business expansion, helping you:
- Modify an existing business environment
- Build a brand new building
- Open a new retail location
- Buy an existing warehouse
- Get out of the lease and own the property
- Refinancing for an extension of your current payment term (getting more money faster)
Commercial real estate loans often offer favorable rates and terms. For example, rates start at around 5%, and repayment terms are around 20-25 years. Dollar amounts for these loans start at around $250,000 and go up to $5,000,000.
The reason these loans provide such borrower-friendly information usually comes down to collateral. The real estate involved in the loan will be used as collateral. Since lenders know that their investment in your business is secured by tangible and valuable assets, they will be more open and willing to work with you.
How to get the best loan for your housing needs.
Don't think that a real estate loan is the only way to finance your second place of business. You have many financing options. The key is to review the right financing products and choose the one that gets you the money you need, the timeline you need, and the rate you choose—don't let bad financing get in the way of a lucrative secondary business.
Many resources are available to help you evaluate credit and make an educated decision. One of the first places to start is a reliable loan calculator, which allows you to see costs in a clear and efficient way. You may also want to talk to a financial professional who can help you identify desirable loans and be aware of red flags.
By taking the time to choose the best location and secure the best financing, you will be setting yourself up for a bright future.
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