How to know you’re ready to expand your shop
February 18, 2016
Is it time to take the leap and expand your shop?
It’s February and we survived the first of the dreaded “J” months of retail. It’s time to not only look forward, but to take your business to the next level. This time of year, it’s common for my phone and emails to be ringing with fellow store owners wanting to talk about expanding their business. It sounds like the next step doesn’t it? After all, you have successfully grown a single store from a dream in your head, to a successful business that is paying the bills and paying you. Everyone is telling you how wonderful your store is, and the only thing better would be to open another one in their area. In your mind, you start seeing how you could easily expand your shop and open another location across town, or even the next city over. You even know the perfect place that’s available and the rent seems reasonable. You have already done the hard work, right? After all, you created a brand that didn’t exist before and gained the trust of not only your customers, but your suppliers. This is a slam dunk. It’s Leap Year and the stars are aligned and you are getting ready to take the leap and expand your shop.
It’s time to go back to being a kid. What did your parents tell you when they taught you to cross the street? Always Stop. Look. Listen. Think. As adult, educated business people we are not that different from our kids. When contemplating expansion, stopping and thinking can be the difference between failure and success when expanding a business. A bad expansion can not only ruin the second location, but might destroy the first too.
What’s necessary before expanding
Can you take a vacation? I’m serious. Can you take a day, a week, or a month off from your current store? If you haven’t stopped laughing at this mere suggestion, you are not ready to expand your shop. Your current store needs to be “grown up” enough to not need you. Everything can’t be running through you. Even if you are the ultimate manager, you have to let go enough to let your team make some mistakes and learn from them. Hold them accountable, but let them make decisions. When they come to you with questions, don’t give them an answer, ask them what they would do. If it is 80% of your “correct” answer, let them do it.
Time for a checkup?
When was the last time you had your eyes checked? Yes, really, because as they say, it might be time for a new prescription. When you open a new location, you will instantly be seeing double. Double expenses that is. You literally have two bills for everything; rent, electricity, internet, phone, payroll, and more. At the same time you need two of everything; more racks, counters, computers, open signs, and even the most basic of work place necessities, a second refrigerator, microwave and most important of all, a second coffee maker.
I know you remember opening your first location. You were really inventive and opened it on a shoestring. As sales grew, so did the brand image you were able to portray. Over time, you improved everything from your paint, to your flooring, to your racks. When you open your second store you will need to maintain your current image from the start. Even the best budgets I have seen for opening a second location tend to underestimate the cost by at least 50%, and some are off as much as 300%. How can the budgets of an experienced business owner be off by so much? We’re not really any different from our customers. Think about why many of us end our prices in $.99 cents. It’s not hard, that $9.99 item is really only $9, not $10. Well, in just that example, you are now off by 10%. It’s great when we are selling, but not so great when we are writing the checks.
An important lesson
The most important lesson I tell all store owners who are looking to open another location is to go and ask their bank for a line of credit. The first response I hear is, “I don’t need it, I am going to self finance. My friend or relative is going to loan me the money” or “It’s in the news all the time how stingy banks are with money. They won’t give me a loan.”
There are several realities here. First off, don’t borrow from family and friends. The simple reality is it just makes Thanksgiving dinner taste bad. Second, even if you don’t need the money and I really hope you don’t, asking for your bank to give you a loan forces you to get naked and share your books with an “outsider.” This “outsider” will give you a free outside evaluation to see if your business is healthy enough for a bank to take a chance on you. If they approve it, that’s a good thing. Emergencies happen and that line may be helpful someday. If on the other hand, they are not willing to give you a line of credit, that’s good too. It shows that your business may not be ready to expand, even though in your mind, it is.
I agree with bankers, “Numbers don’t lie, people do.” Don’t let the lies you are telling yourself force you into expanding your shop too quickly. Instead of being the owner of two stores, you may find yourself the owner of none.
Remember Stop. Look. Listen. Think before you expand your shop.
Keep on smiling,
Neil currently serves as President of the National Association of Resale Professionals, and is a regular presenter and advocate of all topics resale and small business. Neil has represented Small Business with the National Retail Federation and lobbied with Congress and Senators on our behalf. Neil is Chief Financial Officer and Strategist of ECi Stores in Massachusetts, a 4 store plus processing center operation that includes New England's Largest Children's Consignment store Cutie Patutie's, Ladies, Teens, Home Decor and Furniture. Neil brings over 25 years of retail processing expertise and over 18 years of Resale experience.
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