Are you still considering expansion? If you’ve decided that you have someone to manage your current location and that you can dedicate yourself to managing the new location, you’re ready for the next two questions.
My goal is to challenge your thought processes on why you would want to add a second location, and the risks that might occur should your decision to move forward not go as planned. As entrepreneurs, the thought of expanding is exciting, but if you are like me and have been in business for a lot of years you have to question the payback on the risk you are taking with your first location. This week, I want to focus on the next two questions you should think about before making the move.
How will you fund the new location?
If you have made the decision that you will be the one to run the second location and that you will put someone you trust in charge of running your existing store, the next thing you must consider is the funding mechanism. While it’s easy to believe that you’ll find economic benefits to adding a second location, I think you will find that there are little, if any.
Few of the positions in your second location will be able to be outsourced to your first location. Maybe a little of the accounting and bookkeeping functions, but that is about it. You will still need someone to oversee the service department, the parts department, and the sales department. You might be able to get double duty out of one manager in the beginning to save a little money, but it won’t last long. So, your employee cost relative to gross revenue is going to be about the same as your first location.
You will need funding for fixtures, signage, rent, or building payments, compressor and lifts for your shop, trucks, trailers and more insurance. You will have double the marketing costs of your first store for at least the first three years. Then there are your start-up costs for utilities and business management software. You will need a minimum of 3 months payroll set aside. Once you have determined the total dollars needed, I would multiply that by 35% and you’ll have a general idea of what you’ll need.
I know that some dealers who have made the decision to take on a second location assume they will do it by tapping into the cashflow from the first location. In most cases this is a bad decision. With just one small weather event such as no rain, or one small economic event, like oil prices dropping, what was a positive cashflow stream for the first location could turn into a neutral or negative cashflow situation creating a problem for both locations. Having a strong working relationship with your banker will be key to extending your line of credit as well as a positive relationship with your current floorplan providers.
What is your plan for success?
After you have thought through the financial side of a second location the next question that will need to be asked is about your plan for success. It will be important to do a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis, but just as important will be your plan on finding the right people that will help drive the success in each department. While making a good impression on customers is important for both your primary as well as your secondary location, your second location will fall under a much more focused view from new customers than you can imagine.
Making sure that you have both a strong, realistic plan for growing your wholegoods, parts and service business and matching that plan with the specific traits that are needed by your new employees to give your first-time customers a “Wow” experience will go a long way in building your new location by word of mouth. Don’t go cheap when hiring your new team. Good people are expensive, but well worth the investment in the long run.
If you have a well thought out plan, good processes in service, parts and sales you can bring with you from your first location and great people – your probability of success is greatly enhanced. Next week we will focus on both marketing and pricing strategies that will help improve your chance of succeeding with that second location.