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When Is the Right Time to Open a Second Store?

By: AllBusiness.com

If you own one successful business, owning two locations would be better than one, right? Well the answer to that question is maybe.

A second location can be a great means of improving your overall bottom line. But opening location No. 2 is not as easy as it appears. You need to know the best time to open a second location and how to do it to make sure you'll have two successful operations instead of one that's busy and another that drains its profits.

Too many business owners jump the gun and get that second location off and running without the same careful preparation they used the first time. You should expect to spend just as much time planning your second location as you did your first. Many entrepreneurs go into business with the expectation that they will in time have two or three locations; if this is a move you've been planning all along, you're ahead of the game.

First be clear about your reason for opening a second location. This shouldn't be about boosting your ego or giving your son or daughter a job, nor should it be because you need a change of scenery. You should consider a second location only when you see a large enough market to support another location, or you've found a new market that isn't yet being offered your type of products.

Here are some questions to ask when planning for location No. 2:

  • Do you have enough capital? Opening a second location requires significant funding. You'll need to run the numbers to determine the additional costs of the second location, which could include a second lease, more staff, and increased inventory. Can you afford to open and stock a second location without jeopardizing your first? Make sure you will still have cash available for repairs and renovations, to pay your employees, and to maintain your inventory. If a second location is not a feasible solution, try building up your business by selling online. Overhead will be lower, and you won't have the responsibilities that come with two physical locations.
  • Can you find another good location? Opening a second location is only a viable option if you can find another good site. Obviously you'll want this second location to be far enough away from your original site so that you are not simply competing with yourself. Don't just jump at what you think is a busy corner location; do the research. You can start by reading Shop Shopping.
  • Can the neighborhood support your second location? Read What Is the Economic Base of This Place? to help you decide whether you would have a potential target market of at least the same size as your first location from which to draw customers.
  • Do you have proper management? Too many entrepreneurs, in their haste to open a second location, tend to forget that they cannot be in two places at once. This means that you need to have a well-trained employee who can manage location No. 2. It also means changing your mindset from being in complete control to trusting someone else implicitly. For this reason, businesses that begin with partners or active family members sometimes have an advantage. Of course, both parties must have the skills and ability to run a location on their own.
  • Can you diversify? While your new location will generate new customers, it may also attract some of your current customers. If the product offerings are exactly the same, people will only frequent one of the locations. If you offer something different in the second, you can increase your sales volume. You might primarily carry clothing for adults in one store but have a teens and kids line in the other, or have a white-tablecloth restaurant in your first location and offer a more casual version of the menu in your second. Make both locations work for you in the best manner possible. Plan to do research to determine what is and isn't selling at each location.

AllBusiness.com operates one of the Web's premier business sites, providing practical information and services for business professionals and growing businesses. See more at www.allbusiness.com.

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