You’ve done it. You built your own company. You defied the odds and built a respectable book of business. And now your operation has grown to the point where not a day goes by without you asking the question, “Should I open a second business location?”.
On the one hand, it just makes sense. If you can double your locations, you can easily double your money. But at the same time, you don’t want to be one of those business owners whose second location turns into a financial black hole that takes the business down with it.
If you’ve been nodding in agreement while reading this, you’re in luck. Read on for our top financial tips for entrepreneurs who are looking at opening a new location.
Start With the Right Location
It turns out that “Location, location, location!” isn’t just a catchy phrase that real estate agents use to sell more properties. In a very real way, your location has the potential to make or break your expansion efforts.
Case in point, Urban Bean Coffee estimates that the average American consumes about three cups of coffee each day. Many of those folks are likely willing to buy a cup that’s located somewhere on the daily commute. And some may even be prepared to drive somewhere special to meet a friend for coffee. But chances are that not many would be willing to go an hour out of their way for their daily cup of Joe.
Even if you’re primarily a digital company, location still matters. You don’t want your employees to struggle with locating your offices or for the parking lot to be an episode of the Hunger Games every morning as people compete to find space. The best way to make sure that you’re not choosing a location that’s an uphill battle for your business is to start with solid market research.
Is there a demand for your product in this area? Does this location make it harder for people to find you? You have a lot of choices to make when it comes to your location options. But doing this early analysis could help you save a lot of money.
When your business is killing it to the point where a second location is a realistic possibility, it can be tempting to splurge. After all, this time you can afford to buy all the latest equipment and the best quality signs before you launch your new location.
However, for the sake of your finances, you might want to hold off on making those major purchases. Why? Because even when you’ve done your market research and all the stars are aligned on paper, you still won’t know if your second location can make a profit until it actually does.
You can read more here about how operating leases can save you the trouble of sinking tons of cash into a new branch. But equipment leases and the input costs involved with funding your location aren’t the only areas where you can save money.
Can you operate with a smaller workforce? Can you live with owning a smaller building or with smaller amounts of equipment?
You never know what can happen in business. But when you’re able to lower your break-even point, you can lower the overall financial risk to your company more easily.
Figure Out What Kind of Financial Runway You’ll Need
When you’re setting up a second location, you have one major asset that you likely didn’t have the last time around:
A more experienced version of you.
You’ve had time to figure out what marketing strategies and approaches will work for your business. And you’ve gotten the hang of the day-to-day ebbs and flows involved with managing a business. You can probably do this with one hand tied behind your back.
That being said, however, opening a second location has a lot in common with starting a company from scratch. It takes time and startup capital to get the other branch on its feet.
How much cash flow do you need to make your current business model work? How soon can you expect to see cash flowing into your account? By having money set aside with the understanding that it could take weeks or months for the new location to be profitable, you can spare yourself a lot of financial stress ahead of the launch.
Have a Robust Financial System in Place
About a decade ago, a study showed that financial reporting errors caused U.S. businesses to owe almost $7 billion to the IRS.
While a second location can give you double your money or better, it’s easy to get your numbers mixed up if you’re not prepared. As such, habits you can get away with now like doing the books at different times or putting information into the spreadsheet later are a no-go when you’ve got twice as much accounting to do at the end of the month.
Some companies keep multiple ledgers. Other companies have centralized software that deals with everything. Whatever you choose to do, however, it’s important to make sure that you have a solid financial tracking system in place. Your tax accountant and your bookkeepers will thank you for it.
Make Sure That Your New Business Location Is Profitable for Your Bottom Line
Opening a new business location is an exciting milestone for a company. Not only are you opening up another source of revenue, but you’re also showing demonstrable proof that you’ve made it. So how do you prevent this from backfiring on you financially? All you have to do is remember that you don’t have to rush. Take your time. Do your research. And always look for second and third quotes.
Want to learn more about business, entrepreneurship, and all things corporate finance? There’s more where this post came from! Check out the rest of our site to find more articles like this. Visit the Business section of the Everything Entrepreneur Blog to learn more about improving your business location and expanding to new locations.