Opening a new location is a big step for a small business. Discover tips for determining when you may be ready for business expansion, and what to consider when making this important decision for your company.
As your business operations expand and you look for new opportunities to accelerate your growth, opening a new location could provide major benefits for your company. The extra space that an additional location offers to business owners could be the key to overcoming key growth bottlenecks, and gaining a presence in a new market could be essential for achieving your sales goals.
However, deciding when your business is ready to take this next step in your growth evolution can be difficult. There are many factors to consider before opening a new location, and making the right decision at the right time requires a thorough evaluation of your business.
In the following sections, discover key questions that can help you determine when your business is ready to expand and how you can best take advantage of this growth opportunity to maximize your success.
How to Determine if Your Business is Ready to Expand
As your business evolves, you may begin to feel the constraints often associated with new growth. For some business owners, the answer to these growing pains may be location expansion. Here’s what to keep in mind when deciding whether opening a new location is the next step for your business:
What growth challenges signal that your business is ready to expand?
One of the clear benefits associated with location expansion is additional space for your business. If you are a retail business, opening a new location could allow you to stock a wider variety of products to attract and retain more customers. If you work in an office, expansion could enable you to hire more employees and purchase extra equipment to provide even more services to a wider variety of clients. When considering next steps for your growing business, ask yourself: are you having a difficult time keeping up with customer demand? Do you wish you could expand your team and services and reach new clients, but keep running into capacity restraints? If so, opening a new location may make sense for you.
Additionally, despite the increase in virtual and remote business in recent years, meeting customers and clients where they are still matters. This is another place where location expansion can benefit small businesses: tapping into new markets for customer acquisition. Have you maximized sales in your current location? Are you wondering how you can broaden your business’s reach? It may be time to open a second location.
What are the key business characteristics to evaluate when considering expansion?
It’s also important to evaluate your business’s current financial position. Is your business financially prepared to open a second location? Will an expansion put too much pressure on your cash flow, making it difficult to cover critical expenses and grow in the future? Do you have the working capital available to cover the immediate costs associated with expansion, such as rent, payroll, and maintenance?
There are financial resources available to support business owners and provide working capital flexibility in the short term, but reviewing your business finances and having a clear understanding of your current financial picture before landing on a decision is key.
Another element to consider is your staff. Will you need to hire additional employees, and if so, how many? Will any of your current employees be able to relocate to your new location? Keep in mind that adding new employees to your team could strain your cash flow in the short term, even before your additional location becomes profitable.
How to Find the Right Location for Your Expanding Business
Once you’ve evaluated your business and the growth hurdles you face and determined that expansion could be a good fit for you, the next step is finding a suitable location. This will vary depending on your priorities and your industry. Here are three key questions to consider:
1. What does the “right” location mean?
The perfect location will vary depending on your business. For instance, retailers may prioritize inventory space and foot traffic, while an IT company may value commuting convenience, parking availability, and an expansive office layout. Define your business needs before you start looking for a new space, so you don’t waste time viewing unsuitable properties.
2. Is there a need in the market?
Before zeroing in on any location, identify market needs and whether customers in the area will be interested in your services. Do your products or service offerings fulfill a need for local customers? Market research can help here, allowing business owners to get a better understanding of consumer behavior.
3. What is the competition?
As you’re working to identify potential locations for expansion, don’t forget to review the competitive landscape. Are there many stores or service providers similar to your business in the area? What are the strengths and weaknesses of the competitors around your potential location? These questions will provide insight into the viability of your business in the community.
How to Decide Between Buying and Renting
Finally, after deciding your business is ready for expansion, consider whether buying or renting your new space makes the most sense for you—personally and professionally. There are plenty of benefits associated with purchasing your own location. For example, you can build equity in your building and generate passive income from your tenants. There may even be tax benefits if you decide to buy; make sure you discuss these opportunities with your accountant.
However, there are also drawbacks to purchasing. Property taxes will add an additional expense, and elevated interest rates can make mortgage payments add up. Managing the needs of your tenants can also be challenging.
Make sure you’re considering the pros and cons of buying vs. renting a new location for your business and discuss your options with your financial advisor—they can help you decide which option makes sense, for your business and for yourself.
Taking the Next Step in Your Business
Determining when your business is ready to expand can be challenging, and the expansion process can be daunting. But there are plenty of resources available to help you navigate this decision and come out on the other side prepared for new growth.
Your financial advisors and banking partners can be a great resource. In addition to reviewing your business finances and helping you gain a better understanding of your holistic financial health, they can also connect you with resources to make the expansion process easier. Business lines of credit, traditional business loans, and commercial real estate loans (if you’re interested in purchasing your new building) can all help business owners open a new location and hit the ground running. Your financial partners can provide you with more information on these tools, as well as grants and any other resources that may be available to you.
If you’re thinking about expanding your business and opening a new location, get in touch with Santander today. We’re here to discuss your options and help you make the right growth decision for your small business.
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