Are you aware that at least 90% of small businesses fail? In the same vein, according to the Word Bank, small and medium-sized businesses (SMEs) make up 90% of all businesses worldwide. This means SMEs are a big deal when it comes to being the movers and shakers of the global economy. Regardless of the alarming failure rates experienced by small businesses, running one can be very rewarding. One of the many rewards is you get to be your own boss and can provide a solution to pressing societal problems.
In order for your SME to survive and thrive, one of the main aspects you should give priority to is the location. Think about how you will find coffee houses like Starbucks on a high-street or next to a university campus. Fast food restaurants are also often found in these locations, as well as busy shopping malls with a lot of foot traffic. The operational cost of being in these locations is worth it since there is potential for high revenue when you consider the target customers.
For owners of SMEs, location becomes even more important if you see the need to look into a new location to add on to the first one to grow your business. As a small business owner, expanding your venture into a new location is a great feat. It implies significant hard work, commitment, and laying a strong foundation. Opening a second location implies high startup costs and dealing with new competition. For a smart entrepreneur, it’s vital to consider the risks before leaping headfirst.
Here are 5 important questions you need to ask yourself before opening a new business location.
How Are the Finances in the Current Location?
Since you’re venturing into unfamiliar territory, finances should be one of your top concerns. First, you have to be fully confident that your current operations can sustain a second location. Your accounting records should reflect a healthy financial position and cash flow projections. You should be clear on the financial footing of the business to avoid destroying all that you’ve built. Take your time
According to research from California State University, companies with gradual growth reported better performance in the long term than those with quick revenue growth. Reasons cited included higher overheads and operational complexity at scale.
You need not rush into expansion. SMEs that grow too fast and get a lofty new office, enter a new market, and spend money you they have can be in trouble by making too many assumptions about the future. Secure your financial status in your current location to boost your chances of long-term success.
Is It the Right Market?
It’s important to maintain the integrity of your business, which has increased its success in its current location. This ensures when you settle on the second or third location, your business growth is not compromised.
There are some things to keep in mind, such as the demand for goods and services, customer profile, marketing and promotion strategies. All these factors predetermine the financial future of the business. Some businesses just perform better in a certain environment, so make sure the market fits your overall business strategy. For example, it is common to find hotels in popular tourist attractions, by the beach or near the airport.
The idea is to ensure you’re not starting from scratch but recreating your successful strategy. This avoids overstretching the precious resources that SMEs may not have in abundance.
What Are the Financial Implications of Opening a New Location?
There are extra costs to expanding a business, including rent, logistics, and inventory. Moreover, you have to be fully prepared for any scenario. What if you run out of capital when stocking or hiring new staff? Based on your research and projections, is the new business capable of growing sales and profits? How long before the new business can operate independently without the financial support of the first location?
You must also consider the time cost of finding a new office or store location plus the moving and renovation costs. Things like new staff uniform or furniture fittings can quickly add up and go beyond budget.
If you’re thinking of borrowing a loan, ensure it adequately covers the additional investment and you can confidently pay it back. Don’t ruin your credit score as a business owner by taking on too much debt that you can’t handle too soon.
Also Read: 5 Proven Strategies to Elevate and Protect your Credit Score
What Are the Tax Implications for SMEs?
As an experienced business owner, you acknowledge the impact of taxes on the business. This is one thing a lot of SMEs tend to overlook. As annoying as they are, it is also important to be aware of how tax laws vary from state to state and across borders. In most countries, businesses have to contend with multiple tax codes and rates meaning they have to consistently comply with tax laws which keep changing. Failure to achieve tax compliance can mean getting hit with heavy fines down the line, or even shutting down your business entirely.
It’s strongly recommended to be fully conversant with the tax laws and exemptions when opening a new location in another location based on the country you are operating from.
What Will Be the Cost of Hiring New Staff?
A new location comes with more demands and responsibilities. You may have to get new hires qualified to meet new customer demand and manage the operations in the new location. As you scout for new staff, you may need to set aside a budget to train them, which can quickly add up costs.
SMEs must think about what it would take to attract and retain workers with the required skills and talent they need to maintain the standards required to replicate success in the first venture. In addition, make sure your new business location is well equipped to enhance your employees’ productivity.
Tips for SMEs to Grow
Expansion is exciting. However, it’s ideal to assess the financial and tax considerations of having a second or third location. Arising challenges and barriers will be manageable when you’re well prepared. Ensure that you preserve your current successful business as you get into new horizons.
With all things considered, applying the following tips will ensure you make the best decision when choosing a second business location:
Have a business plan
A business plan offers you a roadmap into how to move your businesses to the next level. The plan details your goals and objectives as you go about attracting new investors and growing your profits. You can be flexible with the execution and expectations, but its always important to plan nevertheless. Going hiking into new territory without a map can be catastrophic.
Create a marketing plan
Keep in mind that you need to maintain your brand integrity and recognition when choosing a new location. Based on your current customer profile, you may already have a good idea of how to market your business in the new location. However, market research is still required before opening a second location. This may involve assessing the demand for the business’s products or services in the new location, including competition and other market factors.
After doing some research, draw up a good plan and keep at it to maintain customer loyalty. Have a marketing budget and keep track of it to avoid hurting your business.
Consider an online platform
E-commerce sites offer a low budget alterative to expand your business. If you understand your business’ growth journey, then you can conclude that maybe you just need to go online instead of physical. Besides, global online sites like Shopify offer multiple tools for social media and email marketing.
In the modern world, SMEs should prioritize investing in digital marketing to save on costs and reach a wider customer base. You can reach many customers far and wide compared to a walk-in store, or drive more traffic to your physical location by optimizing your online directory listing using services such as google my business
Final Remarks
All in all, you are in a far better position than most given how you have run things in your first location. This is something to definitely be proud of. This should then give you a good idea while also moving with caution on opening a second or even a third location. Always have a good strategy as you move along into new ventures.
