Kylie Neuville, owner of Symetrie - Permanent Makeup Professional - Eyebrow Specialist
Good job! As a business owner, you have made it! The Bureau of Labor statistics states that 50% of businesses fail within the first five years, so if you are at the point of considering a second location, you should pat yourself on the back!
Considering expansion is not a decision that should be taken lightly. There are a number of risks and financial considerations that will impact a secondary location. If you fail to understand your numbers, you could not only jeopardize your new expansion location, but your existing business could face financial trouble as well if losses occur. You don’t want to sink your ship by taking on too much water!
During the course of writing this blog, we interviewed one of our own clients, Gina Cahee, owner of Principal’s List Preschool. As an elementary school principal, Gina was able to utilize her experiences, as well as her skills as a savvy businesswoman, to see an opportunity in the preschool market. Gina shared many of her experiences with us about her second location to give more insight from a local business owner’s perspective. We are now building her third location - but that’s for another blog for the super achievers!
Here are a few things to consider when making your decision.
You need a clear plan.
Just like any other major decision you make for your business, it is important to devise a clear plan with exact priorities in place. You should pose a few questions for yourself:
- Is your goal to enter a new market or to satisfy your current customer demand?
- If your goal is to expand to satisfy your existing customers, you may want to consider alternate solutions. There may be shipping solutions for products or services that may help your existing location thrive even more without a second location. Maybe you can add an addition on your current building to gain more space?
- Is your access to great employees and workforce the reason for expansion and do you have the correct management system in place to handle this endeavor?
- Is your primary goal to create branding awareness and will this investment be worth the undertaking?
As early as possible, define your business objectives so that you consider all options. You may be able to solve the same problem with your existing location! Being honest with yourself is key. Don’t make the move to impress your friends! The numbers have to work and your business I.Q. has to come up to bat!
Repeat your current business successes.
It may sound crazy, but a lot of business owners don’t fully implement all of the successful processes that made them profitable in the first venture. Some entrepreneurs try to “reinvent the wheel” for their own process because it’s in a new location. Documentation of your current business processes will provide the winning sequence that needs to be replicated at location number two. Document your processes as if you were not present. How would someone run this business if you were missing?
Gina Cahee’s response to processes:
“Yes, we replicate the same processes at both locations. Our curriculum is the same, the quality of staff is the same, and everything else, from dress up days to parent activities, etc.”
Know your cash-flow.
Your second location will take some time to become self-sufficient, but before that time you will need cash reserves to fund this gap. You will need to consider the new mortgage or lease payments, operating costs, payroll, etc to fully understand your total expenses. The first location needs to be able to fund the second location for your projected break even period or you need to setup financing from a bank as a reserve. Prior to expanding, it is always advisable to acquire a larger line of credit or if one does not exist you definitely need one. In short, have a backup plan when money runs short.
Gina Cahee’s response on cash flow:
“When analyzing the cash flow at the second location, we looked at what our expenses were and what we were clearing at the end of the month at the first location. We figured it was enough to support both locations until enough children were enrolled at the second location to support itself. It was a blessing that the second location immediately supported itself. I learned a lot from the first location and was able to make smarter financial decisions and save money once the second location was open. I also have a great CPA and bookkeeper. I would advise any business to invest in them because as hands on owner, I did not have the time nor did I have all of the accounting skills needed to run two centers the size of ours. I consult with them daily and manage my finances with them.”
Don’t take your eye off the ball.
Focus on the big picture. Don’t lose sight of the things that made you successful on the first location. Many of the same challenges will be present on the second location as the first so don’t make the mistake of thinking it will come easy. You don’t want to stretch yourself too thin by not having the right systems in place and your key personnel in place. If you have a rockstar management team at your first location, then you will also need a second rockstar team for the next location. It may feel like it’s easier to open the second location because you are going into it with more confidence, but keep your eye on the goal and stick to the fundamentals that made you successful in the very beginning. If you feel that the second location is too premature, then put on the brakes and hold off until you have strong financials or if the market is exploding with demand. In the case of the market doubling or tripling in size because of some economic uptick, then it is safer to borrow more money for the second location because of the larger market demand. Proceed with caution!
Company culture is important. Keep it.
It is one thing to keep your same exact recipe of those sought-after margaritas, but most importantly, you need to make sure that the same company culture is kept intact. You want your company to follow the same vision and values in all locations that you open to keep consistency for your customers’ experience. One of the best ways to keep the culture is for you, the owner, to keep your presence at the second location for an extended period of time to set the tone. Also, using video conferencing to communicate to your second location is a key component also. You can hold meetings with all managers involved in both locations on one video conference every week to keep the culture the same by sharing the same message to all. Another method to keeping your culture strong is to have a monthly outing and include the management team from both locations so there is a bonding of the two locations. The more family-like of an atmosphere that you can create there will be a stronger bond established with the same values that is important to your culture. Understand what makes your culture unique and the things that your employees enjoy so you can foster the right atmosphere for them to thrive!
Gina Cahee’s response on culture: (Very good value here! Gina hits the nail on the head!)
“We were able to keep the same culture by having high expectations for the staff and administrators. As owners, we are very visible in the our preschools and they all run the exact same. We monitor regularly and have a Regional Director, who travels to both locations and ensures that everything runs well and is up to our expectations. We are also "hands on" owners who are at our centers daily. I have a fantastic management team and they treat our business as if it was theirs. My presence in the center, full time for the first year was a necessity. After the first year, I was there everyday, but I trained my directors well and did not have to work full time anymore. I check in several times during the day, watch the cameras from my phone, and constantly send staff messages and memos reminding them of our goals and expectations. It takes a lot of hands on training to make a second location successful. I sent a team of staff from the first location to train the second location staff. We also had dinner dates and functions off campus to bring the two staffs together so that they could get acquainted with each other and come together as a family.”
Understand the market you are trying to conquer.
There’s too much of a risk involved in opening a second location on a gut feeling so be sure to properly perform your due diligence! Create realistic business plans based on the market share. There is a particular percentage of the market that you can expect to grab based on the number of competitors in your space so study your clientele and understand how many will come to you. Since it’s your second location, you want to have solid evidence that you will have a fair share of the market for your service or product. When you understand the approximate percentage of the market that you can expect, then you need to understand the amount of revenue that will equal. If the numbers look good on a conservative evaluation during your due diligence on your business plan then chances are you will be successful considering all else equal. The number one underlying key factor in all of this evaluation is being honest with yourself and the market. The numbers don’t lie, people do.
Gina Cahee’s response on market analysis:
“We definitely studied the market and realized that Youngsville was steadily growing and had many young families in the area who needed childcare. We studied the age groups of people, especially those with young children. We also rode around and looked at all of the houses and neighborhoods being built at that time, as well as those proposed for the future. Many of the centers in Youngsville did not accept infants due to the low teacher to student ratio set by the state. We have always accepted infants because the demand for them is great and they eventually get older and fill the preschool quickly. As a retired principal at Green T. Lindon Elementary, I saw several children enter kindergarten without the skills needed at that level. I knew that my business, Principal's List was a learning center and had a proven record of preparing children well for school. Therefore, we knew that Youngsville was the place to be.”
Grow your brand. Plant your flag.
Branding of your company should always be on your radar. You are always sending a message to customers with the image of your company either directly or indirectly. Always build your brand to reflect your company values and mission. From the first day of opening your first location, you should be thinking of building the second location and how it is perceived by the public. You want to market your business as though you will be in business for the next one hundred years so that the message is as authentic as possible when you open the second location. Your client base will already have the same perceived image of your brand when the second location opens because you were always telling the same story as opposed to keeping the “mom and pop” culture strong in the basement of your house in your first location. If you happen to fail in your first location then there won’t be a second one, but if you do succeed then the branding that you were keeping strong the entire time will continue to make a positive impact, and easier transition to your second location. Brand your company even in the best of times in your first location because trying to brand in the low economic times will seem desperate. When you are profitable, it is much easier to deploy marketing dollars with your branding campaign so don’t push the brakes when business is good - push harder on your branding!
Gina Cahee’s response on branding:
“Branding was extremely important. The preschool is called Principal's List because I am a retired principal. Our logo and brand shows everyone right away that we are about "academics"! Everyone wants their child to be on the Principal's List when they go to school. We market our brand well and invite them to join our "list". We use our logo in all phases of marketing and social media. Once our second location opened, people saw our logo everywhere and knew that it was the same as the first location that they had heard so much about. We did very little marketing for the second location because the first location had such a great reputation. Parents who were our customers always referred their friends and relatives to us. When the second location opened, we were at full capacity the very first day! We now have the reputation as the "premiere" childcare center in the area. This is due to working tirelessly, nurturing children, taking great care of them and having an extremely professional staff and administration. We think and teach out of the box and teach children to think and learn in ways that most daycares do not. We are in the process of building a new location in Sugar Mill Pond and we are enrolling many children daily because of our reputation at our other two centers.”
New location - new rules. Compliance check.
Your second location may be in a different city or even different state so you will need to check out which rules apply in that location compared to your first location. Will you be able to conduct your business in the same manner as your first location? Is the taxation the same as your first location and will it affect your revenue? Some city and states have more strict laws and regulations that will affect your bottom line, so make sure you understand the implications. Maybe the new city area that you want a second location has an earlier curfew that doesn’t allow drinks to be served after a certain hour or maybe the location is a traditional neighborhood development that only allows a specific number of your type of business. The point is make sure you understand the lay of the land where you want to open your second location.
Seeking a Consultant.
After all of your research it may not be a bad idea to reach out to a consultant for professional help in the evaluation process. You may need a different perspective from an outsider who is not emotionally tied to your business who gives unbiased perspectives. You don’t want to consult with your mom or best friend because they will often tell you what you want to hear, so choose someone who is unbiased with your business so the evaluation will be coming from a place of professionalism rather than emotional attachment.
Gina Cahee’s response on consultants:
Fortunately, we did not have to seek outside assistance.I did my research on business plans and wrote one that was exactly what the bank wanted. My husband retired after a career in sales and marketing. He worked in corporate America and knew how businesses work and operate. I, on the other hand, have a Bachelors and Masters degree in Education and Leadership and had the teaching and learning aspect of the business in my hands. We compliment each other and rely on each other.”
Furthermore Gina added, “My advice to anyone opening a first or second successful business is for them to be active in their business. Never leave others in charge of running your business day to day, without you. You must be active in the planning stages, decision making processes, and visible a lot of the time. Never lower your expectations because employees do not want to comply. Stick to what has made your business grow and what has made it successful and do not change for anyone. Eventually, you will find employees who are good and share your same goals for the business.” - Gina Cahee
Conclusion of your expansion research.
Although expanding your business is one of the best ways to drive growth and revenue, it is also high risk as described above. If you have all of your ducks in a row and have taken into account all of the risk then you are ready to move forward. Remember, something is only risky because of your limited knowledge of a subject. If you do your homework, then you will understand the level of risk exactly; therefore, risk is reduced when you do your homework! Now go out and study your market. This could be the defining moment in your career of multiple locations.
This blog is a perfect segue way to our next blog topic to follow which is “What are the construction methods to consider when building your business?” Pictured on the cover of this blog we showcase Kylie Neuville, owner of Symetrie who is a Permanent Makeup Professional - Eyebrow specialist. Kylie started her business at a different location but had to remodel her space several times to accommodate her clients’ needs. She had to get a little creative but then ultimately ended up finding a new location where the building was perfectly designed for her business. We will explore this more in depth in the following blog topic. Stay tuned!
Interested in building a new location?