05/ 23/ 2005
by Judy Artunian
Opening a second office or store might multiply your sales, but it can also multiply your headaches if you don't take the time to plan ahead.
Whether your new location is across town or across the country, you can expect to face many of the same challenges you dealt with when you first contemplated going into business for yourself. Remember wondering where your start-up funds would come from? Most experts agree that tapping into your own cash reserves is the best way to get a new business up and running. Their advice for funding an expansion is along the same lines: If possible, use the cash flow from your existing facility to cover the cost of establishing a satellite location. If competitive pressures are forcing you to expand before your internal resources are available, you can bring in outside investors. But first ask yourself if you are comfortable with surrendering some of your equity and control. Many entrepreneurs are not.
Another option is to ask key suppliers to temporarily provide better terms on payment—for instance 120 days instead of 30 days.
If you have major customers in another state who expect someone from your company to be on hand on a weekly or daily basis, you might decide that it is more practical to open a location near that of your customers rather than commute back and forth. Since you are making a major commitment to their business by establishing the new office in order to serve them better, consider asking your customers if they will commit to a certain amount of business before you sign the lease on your new facility. Another option is to ask if they could help your cash flow by accelerating payment on your invoices, or paying 50 percent of your fee up-front for the first two months.
If you are contemplating a second retail store or restaurant in a particular neighborhood, take a critical look at the market dynamics of the area. Are there direct competitors nearby? If so, is the market large enough to support your business as well? How will you draw customers? What will motivate potential customers to travel from outlying areas to visit your establishment?
Certain factors are difficult to anticipate. It's hard to predict whether the area's socio-economics will change in the coming years or what your competitors' own expansion plans may be. There is also the matter of whether a major corporation or big-box store is planning to swoop in and offer your products or services at lower prices.
Even if you establish your new location in order to serve a long-time client, you can't assume that their business will always generate enough revenue to keep that second set of doors open. Before you launch your second facility, ask your current customers if they can refer you to customers in your new area.
Hiring and managing employees from afar poses another set of challenges. You will need to master the art of managing through other people. Consider hiring a local staffing company to help you screen job applicants. Encourage your new employees to call with any questions, no matter how minor. Let them know that you are available whenever they need you. Be careful to not cross the line into micro-management. The staff at your new location will be able to function with more autonomy if you establish processes and rules at the outset for handling money and working with customers.
Finally, getting your new site up and running may take longer than you think. If your business is seasonal, build in extra time to allow for unexpected events like construction delays due to weather or complications related to zoning regulations and building permits.
Launching a second location can be costly and complicated, but isn't that what you thought about launching your first one?
