How to Pick the Perfect Second Business Location

Perhaps your restaurant has lines snaking out the door. Or your tax business has identified a prime market in another city. Or your medical practice has more patients than the available space can accommodate. Maybe you just have enough capital to support immediate business expansion.

Scenarios like these certainly indicate that another location would be great. 

What should you look for when opening a second location for your business? We’ll address what you should consider, and how to identify the right location.

Opening a second location for your business.

Here are a handful of questions you can ask yourself to get a clearer picture of whether or not expansion would be wise:

• Is your business space limiting your ability to serve customers?
• Is there a new market you can serve (or are already serving digitally)?
• Do you have the capital necessary to expand?
• If not, do you have access to additional capital?
• Can the factors that have made your first location successful be duplicated?
• Do you understand the legal ramifications of opening a second location?

If you answered yes to three or more of these questions, consider your business a prime candidate for expansion.

Potential alternatives to opening a second location.

If you haven’t, it could be worth exhausting all other sales channels before opening a new location. If you rely on brick-and-mortar sales, it might be worth exploring ways to digitally meet demand, before opening a new branch of business.

“You may be able to grow your business by building a website, eliminating the need for considerable funding and the risk associated with opening a physical store,” according to business expansion strategies from Entrepreneur. “For many businesses, the internet offers low-cost access to a national market, with large numbers of potential customers. The viability of the internet marketing medium for your business is a function of your business’s ability to successfully and profitably deliver your products and services outside your existing local market.”

You could expand digital sales to new geographies, increase your fleet operations, or offer more virtual options for services (think, telehealth, for example).

This requires its own set of considerations (e.g., outsourcing new warehouses or fleet services, having teams that manage digital websites and workflows), but it may present cheaper, easier, and less risky options for expanding your business.

If you’re certain that a new location is the way to go, there’s a lot to consider when choosing the actual location.

How to find a second location for your small business.

Here are 10 considerations that will aid you in choosing the right location and setting yourself up for success once you move in:

 What to consider

1. How much the venture will cost.

You can’t make solid business decisions until you know the price tag. Don’t simply focus on the cost of the physical property—you’ll also need to take into account utilities and other operational expenses. This requires that you have a deep understanding of the expenses at your current location.

If so, you can scale those numbers relative to the new location to project what you’d actually be on the hook for, and what kind of returns you might see.

2. How you’ll continue what has made you successful.

Many entrepreneurs capture something special with their first business location. Whether it’s the location, ambiance, staff, or a combination of many factors, customers are consistently drawn to that store. Your challenge is to transfer what’s working to your next location.

This can be difficult, as the details associated with the store or office will undoubtedly differ from your first. For this reason, it’s more of a translation than a straight transfer. You’ll need to find a way to effectively incorporate the best parts of your business into a new place.

3. How you’ll improve upon what has made you successful.

Don’t stop at simply replicating your first location. This is your chance to transcend the status quo. Look for at least five ways you can elevate your operations, with a particular focus on the customer experience. It’s a fresh start on an existing concept. 

Opening a new location can be stressful—that’s when you run the risk of losing sight of your customers.

You can add new inventory in the new store or offer exclusive promotions. By improving things at your new location, you’ll benefit your operations across the board.

4. The foot traffic in the area.

Even if your business is primarily driven by advertising or referrals, don’t underestimate the importance of foot traffic. The more people passing by your business, the better. So when choosing a location, look for somewhere people care about and visit often. You can get a general idea of foot traffic by simply spending time in a potential area. Beyond that, don’t be afraid to visit with other business owners in the neighborhood and ask them about the foot traffic they experience on a monthly basis.

5. Car traffic in the area.

Another important aspect of your business will be vehicle traffic. Will a lot of potential customers be driving in the area of your new business? Will there be too many cars in the area? If so, parking and accessibility could become a problem for you, your staff, and your customers.

This is another opportunity to speak with local businesses and get their insights on the traffic situation. If there are too few people driving in the area, or there are congestion problems, be wary of setting up shop in the midst of them.

6. Understanding the competition.

On the topic of neighboring businesses, it’s important for you to find out what competitors are already established there. This isn’t just to avoid setting up your business next door to someone who already does what you do. It’s to see how other local businesses promote their products or services.

You can never stand out if you don’t know what you’re standing around. It’s important to find an area where customer needs aren’t being met. Perhaps there’s a business on the same block that is similar to yours, but if you can articulate why yours will be more effective at serving customers, you have a strong chance of succeeding.

7. Establishing a network.

Opening a second business location is never an easy endeavor. Rather than go at it alone, leverage other businesses and contacts in the local area. Not only will this help you gain insider knowledge of your new market, but you’ll make contacts that can boost your awareness. Even the briefest of conversations with other small business owners can yield strong results, as they may then go on to consciously or subconsciously promote your business.

A good way to get your foot in the door is to join any business organizations in your new neighborhood. Each event you attend is another way to rally support for your business and make a few friends along the way.

8. Keeping your eye on the horizon.

Your network will be an excellent source of information regarding the future of your second business location. What’s in store for the region? For example, housing and transportation projects can be gold mines, as they bring more potential customers into your radius.

On the flip side, be aware that the current condition of a potential location is never set in stone. Many small businesses have struggled when undesirable businesses or projects emerged in their vicinity. The more you know in advance, the less you’ll need to worry about this happening to you.

9. Accounting for logistics.

A new location means you’ll need to figure out how to handle shipping and receiving, parking, and a host of other nuances. You can take best practices from your current business location, but plan that many may need to be retrofitted. It can be helpful to talk to your employees about their unique roles and how they would recommend tackling the new logistical approaches your second location will demand.

10. Rent first, buy later.

There are times when you feel confident buying the property for a second location. Perhaps you are already familiar with the area or have found an opportunity so lucrative that buying isn’t a substantial gamble. Most of the time, however, it’s recommended that you think about renting first.

This gives you the chance to learn the area and find solutions to any complexities. If things go smoothly, you can always buy in the future. If long-term problems arise, you’ll be thankful for the flexibility your rental agreement allows.

Funding your new location.

One popular route for entrepreneurs who want to open a second location is a loan from the Small Business Administration (SBA). These financing products come with interest rates and repayment terms similar to those you’d get from the best traditional bank loans.

SBA Loans

The SBA is dedicated to helping underserved entrepreneurs, including women and minorities. If you’ve been rejected in the past and feel that you haven’t been given a fair shake, it’s definitely worth checking out the options this agency offers.

Commercial real estate loans

Commercial real estate loans can also be used for business expansion, helping you:

• Renovate an existing business location
• Construct a brand-new building
• Open new retail space
• Buy an existing warehouse
• Get out of a lease and become a property owner
• Refinance for an extension on your current payment term (to gain more immediate cash on hand)

Commercial real estate loans usually offer favorable rates and terms. For example, the rates start around 5%, and the repayment terms are about 20–25 years. The dollar amounts on these loans start around $250,000 and go all the way up to $5,000,000.

The reason these loans provide such borrower-friendly details largely comes down to collateral. The real estate involved with the loan will be used as collateral. Since lenders know their investment in your business is secured by such a tangible and valuable asset, they’ll be more generous and willing to work with you.

How to find the best loan for your real estate needs.

Don’t assume that a commercial real estate loan is the only way to fund your second business location. You have numerous financing options. The key is to review the relevant financing products and choose the one that gets you the money you need, the timeline you require, and the rate you prefer—don’t let poor financing get in the way of a lucrative second business location.

Many resources are available to help you evaluate loans and make an educated decision. One of the first places to start is a trustworthy loan calculator, which allows you to identify costs in a clear and efficient way. You also might want to talk to a financial expert who can help you identify desirable loans and watch out for red flags. 

By taking the time to choose the best location and secure the most favorable funding, you’ll be setting yourself up for a much brighter future.