A Big thank you to our colleagues at Counts Consulting, LLC for giving us permission to post their previously published article. Permission granted VIA email 10/13/11. All articles are reprinted in their entirety as originally published.
Should You Open Another Place?
It seems to be the norm these days for us to have visions of owning multiple businesses producing ten times our current sales. We could have managers run the day to-day operations while we hold down the Corporate Office. Each year, I have several people inquire about the feasibility of opening another facility across town or in a neighboring city.
First, I ask why they want to do this? Can they visualize dealing with two or three times as many problems? How much time do they spend with family? Have they been promising that “SOMEDAY” the business will settle down, and they will have more time for family vacations and events? I remind them a person on their deathbed never says they wish they had spent more time working.
Here are a few more things you might consider:
1. Can you leave the current business for two or three months without it affecting sales and employee performance? This is usually the minimum amount of time it takes to get the new business going. Will you be able to spend half your time at the current business and half at the new facility after the new facility is up and running?
2. Do you have the financial reserves or loans it takes to get a new business running? Please, don’t fall into the trap of thinking your current facility can supply inventory for both businesses. This has been tried numerous times and to my knowledge, has never worked. I can show you that you are already selling all you buy at your current facility. Therefore, you will need a plan which assures enough additional capital to buy the additional needed inventory plus the cost of running the new facility. You can easily spend a quarter of a million dollars just getting the business open and stocked to do $50,000 per month. If you buy the land for the new facility, you will also need that down payment plus several months payments too until the new business is self-supporting.
3. Unless you can be gone half the time from the original business, you will need to have someone to pick up the management duties. Where do you get the staff needed to run the new business? Will you move people from the original business? If so, will that leave them short-handed or poorly trained?
4. How do you plan to get your customer base at the new facility? Do you have a promotion plan? Who are your target customers: mechanical shops, body shops, insurance companies or retail?
Often, when we get past the visions of grandeur and down to the nuts and bolts of opening that second business, we decide to stay with what we have. Having two facilities is not like doubling your current facility. It’s more like having three times the problems and three times the drain on your cash flow. You may be better off investing money in your current facility and some professional help to improve the profits and performance of what you already have instead of striking out to create a new set problems.
A good rule to remember is that it’s a lot easier to improve profits by reducing unneeded expenses than it is to get extra sales.
Now, this does not mean you cannot make another facility work and work very well. I just want you to be realistic about what you are considering. The last thing I want is for you to get into something without realizing what the financial and time cost will be. Be sure you have a detailed plan that lists everything you will need and what it will cost. Evaluate how much inventory you need, when you will need it, what computer will best serve you, what location best suits your target customer and your budget and when you project the business to make a profit. Remember, if you don’t have a plan, you always meet your goals: nothing.