Steps for Opening a New Business Location
Learn what to consider when opening a new business location with Citizens Bank
As your company becomes successful and established, you may consider expanding your business by opening a new location. This type of investment requires significant up-front capital, whether you are purchasing or leasing the location, which is why it's popular to finance a new location using a business loan or mortgage from a lender. But before taking out a loan, use this guide on expanding your business to review the advantages, disadvantages, expenses and legal considerations of opening a new location.
Your business expansion checklist
Use the checklist below to determine whether the time is right to expand your business with a new location.
- The current location is running smoothly. If your current location runs smoothly, determine whether you can duplicate the success with an additional location. Scalability, or a business's ability to increase output efficiently, is an essential part of every successful business expansion.
- Reliable personnel are available to run the additional location. If your business depends on your presence for day-to-day operations, expanding to another location may not be a viable option. However, if you have an employee or business partner whom you trust to act in your place, that person could manage the new location.
- Cash flow is positive. Your current location may be profitable, but it's a good idea to determine whether the conditions that allow your business to thrive will be present in a new location. For example, if you are a retailer, are there specialty shops or other unique attractions that generate the traffic your business relies on to stay in business? Does the new location offer a similar or larger selection to your customer base? What characteristics of the new location may negatively impact your cash flow? (For example, has your competitor established a customer base in the area?)
- Market trends and demand are conducive to your business. What are the current market conditions in your industry? If the market and demand for your products or services are strong, you may want to act quickly to establish your business in a new location. If demand is lower, market research can help identify business opportunities, which may lead to product or service innovations.
- Real estate markets are positive in the locations you're considering. Think about the real estate market of your new location. Is it rapidly growing and developing, or is the area stagnant? Do the characteristics of the area match your business? For example, if you own a restaurant, will your menu appeal to residents of a trendy neighborhood? Commercial realtors and business analysts can help you determine whether your business is a good fit for a given area.
- You are able to secure funding for the new location. Make sure you have the necessary capital to open a new location. If you are purchasing a space, renovating an existing structure or erecting a new building, you will need to have sufficient funds on hand to cover the down payment to qualify for a business mortgage. If you are leasing a new location, a business loan or line of credit can be used to finance leasehold improvements, equipment and other needs, but you will need to have cash on hand to cover working capital and other start-up costs.
Benefits and challenges of opening a new location
There are several potential advantages to opening a new location, but there can be financial and personal costs as well. For example, your revenue and target market may increase because of your new location, but this additional success may require you to put in longer hours, even with someone else managing the second location.
You may also find that your new location has lower overhead costs because it's brand new and you're spending less on utilities and upkeep. However, if you take out a business loan to cover new equipment, furnishings, leasehold improvements, etc., you'll need to ensure your cash flow is steady so you can repay the loan.
Weigh all of the potential advantages and disadvantages before opening a new location. Consider the cost and risk factors, along with the time and effort it will take to run multiple locations. It's a good idea to speak with industry experts, lenders and financial advisors to determine whether you're in a good financial position to open a new business location.
Expenses and special considerations for opening a new business location
Before you look at real estate for your new location, you'll want to think about the costs and special considerations of opening and operating a new business location. You will also want to consider the pros and cons of leasing versus buying commercial property. Leasing may cost less monthly and gives you more flexibility to change locations. However, you could be subject to rent increases, or your landlord could choose not to renew the lease. You may also have to negotiate leasehold improvements and who pays for them. Buying a location allows you to lock in fixed payments, make decisions on renovations and improvements, and you may defray some of the cost of ownership if you lease a portion of your space to others. On the other hand, buying a location may make it more difficult to move if the location no longer meets your business's needs.
Also, make sure you take into account the cost of proper insurance coverage for your new location. Ask your insurance agent to provide a cost estimate for adding a new location to your existing policy, and include that number in your new location's budget.
Opening a new business location can be an efficient way to expand your business, but remember to weigh the expenses and legal considerations against the potential increase in profits. Speak with your local zoning board or city hall to learn more about the requirements for opening another business location and a Certified Public Accountant (CPA) about the additional expenses your business may incur.
Use a Citizens Bank business loan to grow your business with a new location
If opening a new business location is the right option for you, create a business plan and budget for your project. You should also speak with contractors to understand how much it would cost to renovate a building for your business or build a new location. Once you have a good idea of how much financing you'll need, speak with a Citizens Bank business banking professional about getting a business loan or mortgage. We'll walk you through the financing process so you can take your business to the next level.