New locations can be one of the fastest solutions for expanding a successful organization. A small local restaurant that has gained notoriety for its in-house barbecue sauce may have more demand than one location can manage. A cell phone repair service that has proven lucrative at one location could generate even more revenue with multiple locations and more technicians.
The decision to expand to additional locations can make use of a loyal customer base and local referrals while simultaneously tapping into new markets. However, business owners and executives need to be cautious about expansion, as there are many risks involved.
Every new location is a liability
Every commercial space requires substantial investment. Businesses have to look into a location to ensure it suits the company’s needs. Additionally, organizations have to consider the additional overhead that comes with multiple locations. An executive or owner may have to commit to a multi-year commercial lease and may also have to invest in specialized equipment for each new location.
Beyond that, there are staffing considerations. Both acquiring and training talent can be quite costly. Creating an in-depth financial analysis of each prospective location can be an important step for businesses looking to expand to new facilities.
Rapid expansion may not be sustainable
The success of a flagship location combined with the availability of commercial facilities might lead to a company overextending itself. All too often, rapid expansion can cause the decline of a previously successful company.
The unfortunate reality is that each location requires substantial investments and oversight from leadership within the organization. Creating a five-year plan that looks at expanding slowly but steadily is often better than trying to open multiple new locations in a matter of months.
Businesses could overestimate the amount of demand within the community and could oversaturate the market. They might also take on too many obligations in the form of commercial rent and worker wages, effectively eliminating current revenue by forcing the company to reinvest it all in operating expenses.
Beyond that, there is the possibility that what works at one location may not work at another facility even within the same community. Expanding businesses often need help managing the growth process and planning for long-term success.
Carefully reviewing contracts, reworking a business plan and integrating protections into every step of the process can take some of the risk out of organizational expansion. When leadership embraces slow but steady growth and acquires new facilities in a staggered and appropriate manner, growing organizations generally shoulder less risk related to the expansion of their company.
