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Are You Ready to Expand to a Second Location?

Most business owners want to grow their companies, and one sure sign of growth is when ownership believes the company can expand its operations to a second location.

If your business has reached this point, or is nearing it, both congratulations and caution are in order. You have clearly done a great job with growth, but that does not necessarily mean you are ready to expand. Here are a few points to keep in mind.

Potential conflicts

Among the most fundamental questions to ask is: can we duplicate the success of our current location? If your first location is doing well, it is likely because you have put in place the people and processes that keep the business running smoothly. It also is because you have developed a culture that resonates with your customers. You need to feel confident you can do the same at subsequent locations.

Another important question is: how might expansion affect business at both locations? Opening a second location prompts a consideration that did not exist with your first: how the two locations will interact. Placing the two operations near each other can make it easier to manage both, but it also can lead to one operation cannibalizing the other. Ideally, the two locations will have strong, independent markets.

Finances & taxes

Of course, you also will need to consider the financial aspects. Look at how you are going to fund the expansion. Ideally, the first location will generate enough revenue so that it can both sustain itself and help fund the second. However, it is not uncommon for construction costs and timelines to exceed initial projections. You will want to include some extra dollars in your budget for delays or surprises. If you have to starve your first location of capital to fund the second, you will risk the success of both.

It is important to account for the tax ramifications as well. Property taxes on two locations will affect your cash flow and bottom line. You may be able to cut your tax bill with various tax breaks or by locating the second location in an Enterprise Zone. But, naturally, the location will need to make sense from a business perspective. There may be other tax issues as well — particularly if you are crossing state lines.

A significant step

Opening another location is a significant step, to say the least. We can help you address all the pertinent issues involved to reduce risk and boost the likelihood of success.

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