Planning is critical before expanding your business

For many entrepreneurs, the lure of expanding beyond a single location is hard to resist.

Another location means potentially double the revenues and exposure, but it can also mean double the headaches and expense.

Taking on a second location requires just as much if not more planning than the first time around, because poor planning could compromise both locations.

"Having a successful first location doesn't necessarily translate into a successful second location," says Chris Gattis, chief strategist at Blue Point Strategies in Huntsville, Alabama, a site location specialist, and author of "Business Startup 101" (Blue Point Publishers; $9.99). "Every time you add locations you multiply exponentially the problems," he says.

That's why planning is critical.

To start, entrepreneurs should ask themselves why they're expanding, suggests Gattis.

"You want to make sure this isn't just an ego issue," he notes. There has to be a good business reason, such as broadening your customer base or tapping new markets.

For Josh and Dave Cook, co-owners of Cook's Scratch Kitchen & Bakery, a bakery/cafe in Northport, the timing and financials were just right.

In July, an opportunity to open a second location inside the Book Revue in Huntington presented itself and they had to take it.

The low capital requirement to get into the Huntington store "was too good to pass up," says Josh, 34, who opened Cook's in Northport with his brother in April 2013. The Huntington location opened last week.

At the book store, they inhabited space that had already been a café, so it was in move-in condition, Josh notes. It cost only 5 to 10 percent of what it took to get the Northport location off the ground, he says.

Plus the new 1,100-square-foot location, which offers a slightly abridged menu from the original 1,200-sqare-foot cafe in Northport, is in the heart of Huntington village. "There's a lot of foot traffic," says Dave, 36.

If you can find a lower-cost opportunity to expand, such as the one Cook's found, that's a good way to ease into a second location, say experts.

"You should always look for opportunities to save money," says Gattis.

Keep in mind you're still going to need a cash reserve to hold you over until the business gets off the ground.

"Having a cash reserve can help secure the future of the company," says Keith Simmons, a partner at B2B CFO, a profitability consulting firm in Bay Shore. "No cash equals no business."

For the Cooks, having a minimum of six months' rent in the bank as a reserve before opening a location was critical. "We factor it into our opening costs," says Josh, who says Cook's is also scouting for a third location, possibly in Nassau.

Every business is different, and you need to crunch the numbers so you know how long you can sustain the business in even the worst-case scenario, says Gattis.

When planning, he likes to make owners think about what happens if they only make 40 percent to 60 percent of projected revenues.

"It comes down to a cash forecast," says Simmons, who suggests companies have a business plan incorporating the new location. Account for all costs, including construction or rehab, rent, staffing, marketing and advertising, he notes.

Beyond crunching the financials, having good management in place is key, says Jerry S. Siegel, president of JASB Management, a business management training and development firm in Syosset.

"With a second location, time becomes a premium and the ability to direct people in two locations becomes all but impossible," he notes. "Without effective management, the likelihood of success for a second location is minimal."

Having written processes and policies in your first location that can be replicated is also essential, he says. "You need systems and procedures before you can expand," says Siegel. "Growing without plans in place is inviting disaster."

EXPANSION MISTAKES

1. Not documenting processes and procedures at first location so they can be easily replicated in second location

2. Not creating a specific plan around expansion

3. Expanding without enough capital / cash reserves

4. Hiring weak managers

5. Poor site location