Well done on establishing your own business. Your customers are loyal, and your profits are good. Now that the hard part of entrepreneurship is over, it's time to consider the other hard part of this line of work: keeping it alive, or better yet, expanding it. Whether the idea came from a call from a mall, a client’s suggestion, or your ambition alone, the decision to open a second location is a significant one.
If done well, it can multiply your success. Conversely, doing it when you are not ready can strain your cash, your team, and your sanity. Here is a guide to help you figure out whether expanding your business is the right call at this moment, and what to consider when expanding.
Signs You Might Be Ready to Expand
1. Continued Profitability: Your current location has been making a profit and sustaining good cash flows for at least 12 months.
2. Operational Stability: You have the systems, SOPs, and team that allow the location to function without you micromanaging every detail.
3. Expanding Demand: You have customers asking, “Do you have another branch near me?” or you have found another region that might find your products or services useful.
4. Proven Brand or Product: Your offering has reached a state of maturity, with proven product demand and customer loyalty.
Signs You are NOT Ready to Expand
1. Financial Uncertainty: You are still unclear about your finances, such as your profitability, cash flows, and break-even points. Make sure that you have enough capital to fund the setup, staffing, marketing, and at least 6 to 12 months of expenses of the second location.
2. Operational Instability: You are still micromanaging many aspects of business yourself at the current outlet. Make sure that the outlet can continue operating smoothly even without your presence.
3. Expansion Rationale: You are expanding to another location out of boredom, pressure from other competitors, or your own ego. Ensure the existence of data-backed demand in the new location before expanding.
4. Managerial Deficit: You don’t have the suitable personnel trained or experienced enough to manage either location. Do confirm the existence of a trained deputy to lead the new outlet or the original location in your absence.
Additional Considerations
Generally, do pay attention to the traffic patterns, signage rules, and nearby competition in the region you are planning to operate in, as they can significantly affect the flow of customers to your location.
If your business has registered its trademarks, you can consider implementing a franchising or licensing model to expand your business. This is especially useful if you don't want to be involved in the new location as deeply while still maintaining ownership. Beware that local labour availability may limit your expansions, especially in the F&B or retail sectors.
In Singapore
Commercial space rental is usually a major fixed expense. So before committing to a location, remember to determine whether its foot traffic justifies the price. Pay attention to the terms and conditions of the lease agreements too, since they could increase the rental costs after you already moved in, such as with rent escalation, reinstatement, and break clauses. The local zoning laws may also restrict your business operations by banning certain activities in certain zones.
Enterprise Development Grant (EDG) or Productivity Solutions Grant (PSG) are available for applications to support you in establishing your second location. These grants can help you offset costs related to IT solutions, equipment, core capabilities, innovation, and productivity.
Read more: Is PSG Convenient To Use?
In Malaysia
Operating costs differ significantly by state and city. Labour and rental costs are higher near population and economic centres but feature a wider customer base. You should take into account the demand and purchasing power of the local market when choosing a location.
Additionally, operating a business requires a license and the requirements of obtaining one are not uniform nationwide. They are governed by the local council (Majlis Perbandaran) of each district and may differ on business categories, signage, operating hours, fixtures, health and safety, and etc. Make sure that you are able to abide by these requirements when leasing a commercial space before applying for a business license.
Read more: Renting a Commercial Space for Business? Read This First
Advice from an Accountant’s Perspective
“Growth is great only if it’s sustainable. Build a 12 to 24 month long performance projection for the new location, with worst-case and realistic-case scenarios. Then you can calculate your breakeven point, e.g. how many units or customers per month do you need to survive and thrive. In case of emergencies, leave a robust cash flow to handle emergencies, hiring delays, or underwhelming sales. Set up separate accounts or tracking for each location, don’t mix the numbers for better financial clarity. ”
Final Thoughts
Opening a second location not only brings in more income, it also shoulders you with more responsibility as a business owner. Since success at one location does not mean success at another, it should only be considered when your business has a stable structure, a proven demand, and a team to support the additional operations.
Contact a business advisor for more detailed guidance to expand your business. Because when guided by structured planning, measurable indicators, and not external pressure or short-term optimism, the development of the business becomes sustainable.
