If you thought opening your first store was a challenge, wait until you open your second.
It’s challenging enough to manage one location with customers, employees, inventory and payroll. With a second location, you're likely doubling all that. If you're not ready, not only could your second location falter, but your first place of business may suffer as well.
Before you expand into a second location, here are five things to consider.
Be Realistic About Your Budget
If your first business isn't providing a healthy cash flow, you may need ample money saved or a budget that makes room for what you haven't planned.
[pullquote showtweet="true" alignment="center"]We knew we were ready to open a second location once our first location turned a profit, and we felt like our employee system and repair processes were ironed out.[/pullquote]
Sarah Jacoby discovered how difficult expansion can be when you think you have more revenue bandwidth than you actually do. She started Studio 9, a New York City-based dance studio in 2009.
"When I opened my second location, I was ready and had planned for every possible scenario, or so I thought," Jacoby says.
Her heating system was very inefficient, and during the winter, her heating costs doubled and then tripled her overhead. "A year after I opened the second location, I closed its doors," Jacoby says.
She was ultimately able to open a second location in 2012 and a third location in 2013. "My advice: Always plan on spending two to three times what your initial projection is," Jacoby says. "That way, if you need it, it's there. And if you don't, well, that's a double bonus."
Plan the Right Distance
You don't want your second location to cannibalize sales from your first store, especially in retail. And yet, there will always be exceptions.
Brittany Rose and Sema Konur co-own Ashburn, Virginia-based More Than Cheer, which offers recreational sports classes for children. Rose says during the summer of 2014, they had an opportunity to expand to a second location.
It was only 10 miles away, and they were a little worried about some of the clientele of their first gym going to their second gym. "It was a concern, definitely," Rose says. "But what was a positive was that we took some of our girls from our Ashburn location and moved them to the Sterling location, and the marketing engine in Ashburn, where we were well known, filled those spots right back up."
Chuck Boyce, on the other hand, came to quickly see why a second location—as a general rule—should be fairly close to the first. In 2004, in Wilmington, Delaware, he opened Brandywine Executive Center, which provides office space to business owners, and in 2013, he had the opportunity to purchase an existing business and turn it into the second Brandywine Executive Center.
Unfortunately, the second location was 2,300 miles away, in Henderson, Nevada. "A better plan would have been to open closer to our first location," he says.
He spent a lot on air travel to Henderson, and managing two locations in different time zones proved challenging. So when he opened up his third location, Boyce says that he opened it only 1.2 miles away from the first location.
Work Out the Kinks
Lauren Fairbanks, owner of a small chain of phone and laptop repair shops called Digital Remedy Repair, opened her first store in her hometown of Monroe, Louisiana, in 2013. She opened her second repair shop a few states away, in Charleston, South Carolina, where she now lives, and plans to open a third location, also in Charleston, this summer.
"We opened our second store almost exactly a year after opening our first location. We actually opened about four months sooner than we had planned because we found a location in a high-traffic area that we wanted to jump on quickly," Fairbanks says.
But she never would have opened early, or at all, if she hadn't conquered the challenges of running the first store. "We knew we were ready to open a second location once our first location turned a profit, and we felt like our employee system and repair processes were ironed out," Fairbanks says.
Don't Overthink It
If you're too careful and deliberate, you may never do it.
"We tripled our income daily when we took our second location," says Jeff Martin, founder of Smallcakes, a cupcake franchise that grossed $42 million in sales in 2014. But in March 2010, when Martin opened his second Smallcakes in Olathe, Kansas, just 10 miles away from his first location in Overland Park, he had no way of knowing his fortunes would triple.
And there were a lot of good reasons not to open a second location. Martin had been in business for only four months when he began looking at another location. A landlord was a fan of his cupcakery and thought it would work well at his nearby shopping plaza. Martin didn't spend money researching the traffic patterns. But he trusted his gut—and knew the area.
"It was somewhere where we ate at and spent our money at," Martin says.
Martin admits that as his business has grown, he has become more cautious. "I feel like I was more fearless back then," he says. "Now it's like you have to check that the t's are crossed and the i's are dotted."
However, even if you have the urge to just go for it, you shouldn't forfeit doing your due diligence. Opening a second location "really was a stressful process," Brittany Rose says. "If it's not necessary, and you're having to reach too much to open a second place, there might be a better opportunity out there if you wait."
Read more articles on expansion.
This article was originally published on February 17, 2015.