As a small business owner, future growth plans and small business expansion live rent-free in your mind. It’s understandable—especially when you’re seeing the success your current business is experiencing.
And if you’re like 64% of US small business owners, you expect to increase your revenue in 2023. But have you given much thought to how you’ll increase your revenue? It might be time to consider expanding your small business to a second location, depending on your business model.
Expanding your small business isn’t a decision to make lightly. We’ve pulled together everything you need to know before you commit to opening a second, third, or additional locations for your small business.
In this post, we’ll cover:
- How to know when you’re ready to expand
- The pros and cons of opening a second business location
- How market research plays a role in expanding your business
- What tools are going make your expansion successful
Let’s dive in.
How do you know if your small business is ready to expand to new locations?
Opening a second (or additional) location and expanding your small business is a crucial decision for every business owner. Sure, wanting to expand your business is a given for most people, but finding the right time is essential.
Opening too soon puts you at risk of overextending yourself and your business. But waiting too long can mean you lose the buzz and momentum you’ve worked so hard to build.
So, how do you know if you’re ready to open a new location? Take a look at your current business and ask yourself these questions:
- Do you have more business than you can handle at your current location?
- Is your physical location too small for the customer base you’ve built?
- Do you have the systems to recreate your business in a new location?
- Do you consistently have high wait times, long reservation lists, or line-ups?
- Do you have a stable financial foundation to support market expansion?
If you answered a resounding “definitely” to most of these questions, it might be time to start planning how to expand your business to new locations.
The advantages of small business expansion to new locations
It’s natural for entrepreneurs and business owners to want to see the businesses they’ve worked so hard for grow. And when you’ve been successful—especially early on—it can plant the idea of expansion in your mind. While it’s natural to have some hesitation around expanding, there’s no doubt that there are clear advantages to expanding your small business.
Welcome a new customer base
When you ask business owners why they want to expand their business, you’ll often hear about reaching new customers. And that’s for a good reason—while repeat customers are extremely valuable, new customers are the fuel that take businesses to new heights.
|Did you know? On average, 50-80% of sales are from one-time customers who make a single purchase from your business. (Lexer, 2021)
When you expand into a new geographical area, you’re entering a new market with a new pool of customers. You can reach people who may not have been able to travel to your original location, tap into those who live locally, and fit your target market.
A large, diverse customer case is a great way to future-proof your business from being overly reliant on a single client type.
Increase your sales volume and profits
When you have a physical store, you’re constrained by the available space in that space. After all, you can only stock and sell a certain amount of products. But when you expand to a new location, you’re also expanding your space. You can carry more products, new product lines, and even new categories of products. This gives you the chance to increase your sales volume.
It also makes sense that your profits will increase. For example, if you currently have a 10% gross profit margin in Store #1 and replicate that success in Store #2, your GPM remains 10%, but you’re doubling the money from that percentage.
Simply put, it’s a no brainer: you can expect more revenue if you’re making more sales.
Expand your brand
Brand recognition is a significant factor for consumers when it comes to how and where they spend their money—being consistent with your branding can increase your revenue by 20%.
From social media to your in-store experience, you’ve spent years honing your brand identity, making sure it comes through in everything you do. And with the opportunity to open a second location, you also have the opportunity to expand your brand and grow your brand recognition.
When you open a second location, suddenly your brand will pop up in front of potential customers in more than one place. You’ll start to stand out from competitors as you positively influence people’s buying decisions.
You’ll also have the opportunity to add layers to your brand that appeal to different target markets depending on your business plans and geographical diversity.
Create an economy of scale
Expanding to a second location has the benefit of spreading out the risk of doing business. It can reduce the potential negative impact of one poor decision or unsuccessful product on your business.
You can also spread the business costs across more markets, creating an economy of scale. Economies of scale are the financial benefits that a business gets because of its size. When you spread your business costs over larger scales, you effectively lower the cost of doing business per customer.
The disadvantages of small business expansion
While there are clear advantages to expanding your business, there are also disadvantages that you should consider. These disadvantages shouldn’t be seen as a reason not to grow. Instead, they’re things to keep an eye on as you expand so your second location can be as successful as your first.
Loss of control
As your business grows, you’ll inevitably need to consider delegating management responsibilities and relinquishing some control. You can’t be everywhere at once, so you need to be able to step back and trust your team to effectively manage while you’re away.
Before you expand, get comfortable with the idea that you need to be able to lose a bit of control. Work to build a team that you have confidence in—this will help relieve some of the stress of opening a new location.
Expansion requires a significant financial investment to be successful. You’ll need a new property, equipment, inventory, staff, and more to open the doors to your new location. Evaluating your financial situation before jumping headfirst into expansion plans is important.
You may need to borrow money to make your expansion dreams a reality. Take a clear look at your finances and the obligations of taking on debt beforehand.
Increased overhead costs
Beyond the initial start-up costs of opening a second location, you’ll also be faced with an increase in your ongoing overhead costs. With more employees, more inventory, and more everything, it’s important to ensure you’ve got the needed capital to cover your operating costs.
Make sure you’ve crunched the numbers before signing the lease on a new location!
Higher employee turnover
When businesses expand too quickly, they often hire quickly as well. This can lead to poor hiring and onboarding practices. Plus, when small businesses expand, employees are often given extra work, which can lead to overworked employees.
These factors lead to higher employee turnover and with the US turnover rate sitting at 47.2% in 202, you should be working hard to lower your turnover rate. Plus, replacing an employee costs up to two times their annual salary. So it makes sense that you should do everything possible to create positive work environments and maintain excellent hiring and onboarding practices.
|Hire right, every time. Using Homebase employee hiring and onboarding software, you can easily find the right candidate and set them up for success to help you achieve your business expansion goals.
The importance of market research before expanding your small business
Before you dive into expanding your business, it’s vital to do some research—specifically, market research.
Market research is collecting and analyzing data about your industry-specific market to better understand everything from your competitors to customers to geographic areas. You can use all this data to help you make decisions about your expansion plan.
It’s imperative to conduct market research before expanding your business. The information you get from your market research will help reduce the risks associated with expansion. For example, suppose you were looking to open a new location in a suburb but find that 95% of your current customer base identifies as urban dwellers. In that case, you may reconsider where to open your second location.
|Did you know? While market research might be new to you, large corporations invest millions in improving their brands and expanding to multiple locations through market research. The revenue of the market research industry was over 41 billion dollars in North America as of 2021. (Statista)
When you undertake market research before expanding to a new location, you’re more likely to:
- Find the right geographical location for your business to expand into.
- Understand the wants and needs of your target market. This can translate into improved customer satisfaction and increased sales—when you know what your customers want and need, you can serve them better.
- See better results from your marketing efforts.
- Improve your overall brand awareness.
If you’re wondering where to start regarding market research, there are two key research areas to explore before you commit to an expansion plan.
1. Customer research
Customer research is the most important kind of market research you can do. Ultimately, it helps you understand more about your current and potential customers. This research has the power to inform every decision you make about your second location—from what products to stock to where your physical location should be.
If you want a simple way to conduct customer research, consider contacting your customers to complete a survey or poll. You can email your customer list or even let them know about your survey during their checkout process. Offer a discount code to incentivize people to complete your survey.
You can also go one step further and conduct focus groups or one-on-one interviews. This is a great way to go in-depth with your customers and spend time learning about who they are. You should also offer an incentive to participate, especially since a focus group or interview takes longer than an online survey.
Both methods will help you learn why they love your business, what they would change, and some key demographic information about who they are as consumers.
2. Competitive research
The next type of market research you need to consider before expanding is competitive or competitor research. Understanding what your competitors are doing is essential to know how you can stand out in your industry. It can also help you pinpoint a physical location that may need your services due to the lack of competitors in the area.
Review your competitors’ marketing strategies, locations, product offerings, and pricing. With this information, you can make informed decisions about expanding your business to a second location.
Valuable small business expansion tools to help you manage several locations
Now that you’ve finished your market research and weighed the pros and cons of opening a second location, it’s time to find the right tools to make this transition easier.
While some of these tools may be familiar to you, ensuring the option you’re currently using can manage and integrate with a second location is essential. Because having to manage two separate systems sounds like a headache you don’t need!
With these five tools, you’ll be well on your way to streamlining the operations of your newest location.
1. Find an integrated POS and inventory management system
There’s something to be said for tools that can manage more than one thing simultaneously. And a point-of-sale (POS) system that integrates with your inventory management is one of those things that will save you time, money, and sanity.
Take it one step further with a POS system that can integrate with your ecommerce store, if you have one. When looking for a POS system, keep your eyes out for an “omnichannel platform.” This is a system that supports the sale of your product wherever you find your clients—think stores, pop-up shops, local markets, desktop computers, mobile devices, and even social media.
Here are five must-haves (and two nice-to-haves) to consider when selecting a POS system to help you manage new locations:
- A wide selection of payment options. You want to get paid, so to do that as often as possible, give your customers as many payment choices as possible. Remember, the more flexibility, the better!
- Built-in inventory management capabilities. Update and track your inventory across multiple locations so you never order too much or too little product.
- Credit card processing. It should go without saying, but it’s essential that your POS can process credit cards and is compatible with multiple credit card processors. That way you can accept as many different credit cards as possible.
- Bulk product importing. Adding your product information into your POS system is a slow process; if you have hundreds of products, it could take days to enter all that information accurately. Some POS systems have a bulk-product import function that lets you import all your product information at once.
- Add in promotions and discounts. A POS system that can easily accept discounts gives you the flexibility to mark down your products and offer special promotions.
- A mobile POS system. Taking your POS system on the go is great for certain businesses. If you participate in a lot of local markets or events, bringing your POS with you instead of relying solely on cash is ideal.
- Third-party compatibility may be necessary in the future. A POS system that can integrate with third-party systems opens up a world of possibilities. Adopting a POS with this capability lets you add new functionality as needed.
2. Use a messaging system to organize your team
Distance might make the heart grow fonder, but it can be hard on a small business. As an owner, splitting your time between two or more locations can be difficult for you and your staff.
Finding ways to communicate with your staff is essential even when you can’t be in the same place. Why is communication so integral to running a successful small business?
- Effective communication in the workplace can make teams stronger and increase productivity
- Good communication can eliminate unnecessary problems
- Open communication is linked to higher employee satisfaction and engagement
- Strong communication can help prevent toxic workplaces
- Conflicts between employees or conflicts between employees and management are mitigated with good communication
Take advantage of all these fantastic benefits and make the transition to a second location smoother by using a messaging app that makes it easy for you and your team to communicate with each other.
An instant messaging app that lets you directly message team members as individuals or as groups is a great way to simplify day-to-day communication. With a team communication app, you’ll be able to keep everyone on the same page, even if they aren’t in the same location.
Send a quick message to alert employees of an incoming delivery, relay information about an upcoming sale or promotion, or find a team member to fill a shift. With a messaging app, you can reach all your team members at once.
|Open lines of communication are essential in any small business. Effective team communication helps reduce errors by 70% and increase productivity by 25%. (Apollo Technical)
For a messaging app to be truly effective, you need to put it in the hands of your employees. What better way to do that than using a system that works on their mobile devices? The most efficient messaging system is a messaging app that can be installed on iOS and Android.
3. Make scheduling across locations easy with a modern scheduling tool
Adding in a second location doubles your admin workload. Creating a schedule for your employees is one of the time-consuming tasks that absolutely will double up when you expand. A second location can also complicate scheduling when you have employees working at both locations—you need to make sure you aren’t double-booking anyone or short-staffing either location.
Finding tools to help you automate these tasks can save you time and—you guessed it!—reduce errors.
When exploring employee scheduling tools, look for one that incorporates auto-scheduling to save you even more time, and automatically connects to your messaging app—so you can instantly notify your staff of any updates or shifts that need to be covered.
|Homebase makes it easy to build, share, and optimize schedules in one easy app, putting hours back into your work week. “With Homebase, I am able to save 20 hours a month making my schedule. You guys make it so easy, I never have to worry!” — Angel Putnam, Franchisor of Pigtails & Crewcuts, Greensboro, NC
4. Streamline payroll with an integrated payroll–timesheet tool
A new location means more staff, which means more payroll entries, which means more time spent in front of a spreadsheet. And with two locations, it can be challenging to know when staff members are showing up for their shifts and when they are clocking out.
But with the right payroll software, you don’t have to rely on these arduous processes or guessing games.
First, to help you manage two locations, you’ll want to find a payroll system incorporating a digital time clock. There are three main reasons why time clocking is an essential feature when you are expanding your small business:
- There’s no way you can be at both locations at the same time. Having a digital time clock lets you know when employees are at work and when they’re running late, giving you the peace of mind that your business is running smoothly.
- Save time and kick data entry to the curb with a time tracking system that integrates with your payroll system. When your time clock generates timesheets and automatically converts hours into wages, you can run payroll in just a few clicks vs. a few hours.
- Digital time clocks help reduce time theft. When you track hours with digital time clocks, you can enable GPS location requirements for clocking in. You can give each employee a unique pin, or even snap photos when they clock in. All this can help you better keep track of who’s clocking in when and where.
|Did you know? Time theft costs the average employer 20% of every dollar they earn. That means if your business brings in $1,000 on a good day, you’re losing $200 to time theft. (The American Society of Employers)
Now that you’re on board with digital time clocks, make sure your payroll system makes life easier for you too. That might sound like an outlandish ask from a payroll system. Still, digital payroll systems should be equipped to help you with everything from calculating taxes, filing W-2s and 1099s, and ensuring you’re staying compliant with FLSA record-keeping rules.
5. Hire the right candidates using a hiring and onboarding tool
Hiring a single new staff member is a lot of work. Hiring and onboarding an entirely new team to run your second location? That’s a full-time job.
As a small business owner, you know how important it is to hire the right people for your business. And when hiring for a second location, you need people who will uphold the culture you cultivated at your first location.
To make sure you’re hiring right the first time, it’s important to have hiring and onboarding processes in place. This will ensure that you’re not only getting the best candidates but that you’re also setting your new hires up for success.
When it comes to hiring, follow these five steps to find suitable candidates for your small business:
- Write a job description that accurately conveys what you’re looking for in a candidate and what they can expect from the position. Being as transparent as possible will help your posting land in the hands of the right people.
- Post your job to as many online job boards as possible. Make sure to look for any industry-specific job boards to narrow down your niche.
- If your posting isn’t getting the traction you need, promote it! Putting money behind your job posting may be the push it needs.
- As you move into the interview process, add a few screener questions or a screener interview to ensure you’re spending time on the right candidates.
- Keep the interview process short and sweet—having four different interviews plus a written test is a great way to scare off great candidates.
Once you’ve hired the perfect candidate, it’s time to onboard them. The onboarding process is the final step in ensuring your new hire succeeds. Onboarding will look different for every business, but if you follow the Four C’s of successful onboarding, you can rest easy knowing you’ve done everything possible to set your second location’s team up for success.
1. Compliance. Explain all of the rules and policies of your business. This includes filling out all necessary paperwork.
|Make the first C—compliance—easier by automating your onboarding process with Homebase. Have new hires complete their direct deposit, W-4, W-9, and I-9 forms online, and send them a welcome package so they can hit the ground running on their first day.
2. Clarification. Make sure your employee understands their role and responsibilities. In many retail and restaurant businesses, this involves shadowing a current employee so they can learn the ins and outs of the role.
3. Culture. This C sets the stage for what the culture is like in your business. Show them around the new location and consider having them work a few shifts at the current location so they can fully understand the culture of your business in action.
4. Connection. At this stage, your new employee starts to connect with other employees. This is integral so that they begin to feel like a member of your team. You can help this process by introducing them to their coworkers, scheduling informal activities, and assigning them a buddy for the first few weeks who can show them the ropes.
A lot goes into expanding a small business to new locations, but with a bit of planning and the right tools, you can grow your business—and your revenue.
With Homebase, you can streamline your small business expansion with one easy app. Hire, onboard, and schedule your employees, run your payroll, get help with compliance, and keep tabs on what’s happening when you’re away—all from one app.
Optimize your small business expansion with Homebase
Is your business struggling with adding a second location? Get Homebase for easy scheduling, time clocks, payroll, messaging, HR, compliance, and more — all in one app. Get started for free.
Small business expansion FAQS
How will I know when it’s time to expand my small business?
You’ll know it’s time to expand your small business when you have more business than you can handle in your current location. If you’ve always had plans for future growth, there are a few things you’ll want to have in place before you start thinking about expanding:
- A solid team of employees
- You continually hit your financial goals
- You’re running out of space
- Your industry is growing
- Customers come from far and wide to visit your business
How do I find staff for my new location?
Finding staff for a new location can be overwhelming. But with Homebase, hiring has never been easier. Look through our library of pre-written, customizable job descriptions and then post and promote your job to the top online job boards from one easy place. Track your applications and schedule interviews from Homebase—we make hiring the best candidates for your business easy.
What steps should I take to expand my small business?
The steps you should take to expand your small business will differ for everyone. Some people will need to consider financing, for example, while others can pay any associated costs upfront. But every business can benefit from these four steps:
- Make sure your personal management skills are in good shape. Managing two locations takes a lot of juggling, that excellent management skills will only bolster.
- Focus on developing a strong managerial team at your first location. You might not be able to bring people to your second location, so having a solid team in your established location that others can rely on is extremely important.
- Put a set of standardized business practices in place, including everything from scheduling and payroll to hiring and HR. Not only will this be valuable if you have staff working at both locations, but it will also make it easier to replicate your success at a second, third, and even fourth location.
- Take the time needed to plan. From your finances to a location to hiring new staff, opening a second location takes time. Be patient and give yourself everything you need to expand your small business successfully.
What’s the difference between expansion and franchising?
The difference between expansion and franchising is that franchising is an expansion plan that relies on local operators—or franchisees—to open new business locations using the branding of a pre-existing business. While this is a great way to expand a business, expansion refers to either opening a new location or moving to a larger location to grow your business.
How long will it take to open a new location?
The time it takes to open a new location for your business is a tricky question to answer. It’s dependent on many varied factors:
- What’s the real estate market like in your area?
- Do you need to take out loans?
- Will you need to renovate your location once you purchase or lease?
- Is your supply chain able to handle the increased demand for products?
- Can you hire staff for your new location quickly and efficiently?
The answers to these questions—and many others—will help you establish a realistic time frame for how long it will take you to open a new location for your business.