4 Things to Consider Before Expanding to a New Location

So you’re looking to grow your small business. For some owners, that means offering a new product or hiring additional employees. Others take what can be a more risky path – expanding to another location. If successful, expansion can increase revenue and diversify your income stream. But it also comes at a cost that, if not managed, can eat into your overall profits. That’s why it’s important to carefully research this option. Be sure to consider these four factors as you examine whether expanding to a new location is right for you.

Tapping a New Market or Cannibalizing Current One?

Another store would ideally mean more sales. But does it necessarily mean more customers? Your current customers might be making their regular purchases at the new location instead of the old one. If your goal is to reach new customers in the same market, then the new site can’t be located too close. That’s less of an issue if you’re pursuing a new target market. For example, Gap and babyGap stores are often located near each other. But since they tap different markets, they’re not making one sale at the expense of another.

Prepare for Added Start-up Costs

Very few business spaces are move-in ready. They often require some renovation, which adds to your costs. You may need to buy equipment, install new technology or repair existing infrastructure. If you don’t have the skills to do the work, then you will need to hire someone to make the modifications for you. Have the property inspected before signing any agreement so that you uncover any major issues before you’re committed to the space.

What’s the Competition Doing?

Do your homework and look at what your competitors are doing. It could give you some insight into the market. If another business is consolidating locations, it could mean that the market is shrinking, so expansion may not be advisable. Or it could mean that they expanded too quickly and are drawing back. If you can learn from their mistakes, you might be able to succeed with a different strategy.

Can Two Really Live as Cheaply as One?

One of the advantages of expanding is that you can buy merchandise in greater volume and realize a lower per unit cost. In addition, you might also be able to share expenses. For example, one advertisement could promote both locations. But that assumes that the needs of both locations are the same. If you are serving different markets with different products, you may not realize either advantage. It’s important to consider the similarities of the two locations in order to predict whether you can benefit from pooled buying and cost sharing.

When done right, expanding to a new location can help you grow your business. But it’s important to look before your leap. Be sure to examine these four factors in your research as your build your game plan.

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