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For many entrepreneurs, growth means expanding into a new location. Offering your products and services in another state can be a great way to reach new customers and increase your market share.
However, expanding your business into a new location isn’t easy, and if you aren’t prepared, you could put both locations at risk. That’s why it’s important to understand what you’re getting yourself into first.
If you’re preparing to expand your brand into a new area, here are five tips to help you get started.
1. Take your time
Expanding into a new location increases your opportunities to grow, but it also increases your risk. By making the move, you’re making a considerable financial commitment and opening yourself up to potential company culture problems. Most business owners underestimate what it takes to expand to a new area.
Before making the leap, ensure that your business is ready to expand into another state. Do you have a loyal customer base, steady cash flow and several years of profitability under your belt? Or, more importantly, do you have processes in place that can scale?If not, you might look for lower-cost strategies you could use to expand. For example, if you run a successful brick-and-mortar retail store, you could consider opening an ecommerce business.
2. Research the area first
Once you’re confident your business is ready to expand into a new location, you should begin researching the area. Understanding the area will help you determine your startup costs and learn more about the competitive landscape.If you plan to hire employees at your new location, you’ll need to find out what the minimum wage laws are in that state. For example, the minimum wage in Kansas is $7.25 per hour, but if you choose to expand into Missouri, it’s $12 per hour. That means you’ll have to account for the increased payroll costs.
You should also consider the property values, rental rates and cost of business insurance in that location. Determine the state and local taxes as well, since some states are more tax-friendly for businesses than others.
3. Update your business plan
Next, update your business plan to account for the new location and target audience. You can learn more about the local market by researching competitors in the area and learning how they advertise. This information will also help you determine ways your business can stand out.
You should also adjust your financial objectives to account for the new location. Create a financial forecast that projects the estimated costs and revenue of your new location.
4. Find the right people
Since you already have a successful business, you probably understand the importance of hiring the right people. Still, hiring employees to work at a location in another state comes with additional challenges.
If you aren’t careful, the employees in the new location may not feel like they’re truly part of the company. Or if you’re spending a lot of time at the new location, your original employees may feel left out.
Communication is vital during this process — come up with a plan for how you’ll stay in touch with your employees at both locations. Having a monthly call to go over business objectives will help all of your employees feel like they’re on the same team.
5. Look for financing
There are many different ways to finance a business expansion, but a small business loan or line of credit is ideal. Financing gives you a way to cover the expansion costs over a more manageable schedule without putting your working capital at risk.
Since you’ve already taken the time to update your business plan and determine your startup costs, you’re well-positioned to apply for a loan. One option is to apply for a loan through a bank or credit union since they offer low rates and flexible repayment terms.
However, the application process can be tedious, and banks tend to have higher lending requirements. If you want a faster application process and funding, non-bank lenders are a great alternative. For example, a lending marketplace allows you to apply once and receive offers from multiple lenders.
If your initial business was successful very quickly, you may feel pressure to replicate this success at your newest location. Plus, you’ll want to earn your investment back as quickly as possible.
Patience is key during a business expansion. Don’t get discouraged if it takes time to break even or if the expansion takes a toll on your original business. Challenges are inevitable, but careful planning and lining up the financing will make all the difference in your endeavor.