If you pause to look at your checkbook, savings and the cash you may have on hand, plus the many aisles of goods and stocked shelves bulging with merchandise that surround you, you have accomplished a lot as a retailer. As you take inventory and access what you have accomplished, you may also note that you have key employees who connect well with customers, help you be profitable, and keep your business running smoothly and successfully. Things are going well, very well.
Could things, however, be better? Is it time to expand, and would you possibly consider opening a second store at another location? Is there an opportunity to buy a competitor? Expanding into the second or third store and location are how many big-box retailers began their expansion growth cycle. It is the classic American way: more and bigger is better. Could this be the path for you to increase sales and pump up profits?
Having more floor space and that second location does make you eligible for discounts from many wholesalers because of your increased buying power. A second, third and maybe more locations can also provide additional business advantages, including more customers, more goods sold and more cash flow. More locations also means more brand and business recognition.
Before you sign on the line or buy an existing business or building for a second location, there are many details, questions, and things that need answers and attention. You will also have to do some serious soul searching about your personal time, your long-term goals and your relationship with your employees. You must face the fact that you can’t be in more than one place at one time. Some business owners fail with additional locations because they fail to hire the right employees and try to do everything themselves — this is, of course, impossible.
Expansion to additional locations has helped many successful businesses become even more successful. Is it time for you?
Finding the Best X
If you decide to buy an existing business or new location and open an additional hunting retail business there, finding the next location can be simple if you know how to follow the clues. First, simply ask around in your business circle or quiz family and friends. Next, ask your employees if they have heard customers mention competitors who are faltering or closing. As always in business, listening to your customers can generate ideas, opportunities and profits. Their comments can guide you to new markets and locations.
You can also do research for a second location or store front by looking at local business publications and in the public notice section in the back of newspapers. Focus on the foreclosures. Another top research tactic for businesses or locations is to go shopping and note what you see. Look around your competitor’s store, shelves, parking lot and neighborhood. Make notes and comparisons if you are a similar retailer and work in the same markets.
Save yourself time and money by finding the existing open-and-operating business or location yourself. It’s important to note that some businesses fail because of a changing environment at the location, so look closely and note problems or pending difficulties. While buying another hunting retailer space has some advantages, it could bring problems. Those or similar problems could also be found with any building, so look at the clues and challenges.
When shopping for that additional space and place, determine a best fit, including location, potential customer base, that site’s local competition, and other basic business factors. Also consider the long list of advantages and disadvantages, with your time being one — a big one. Then you have to determine how you will pay for the second location and how long it will take to reach the break-even point. A top strategy is to determine the numbers, then let these sit for a few days and revisit, since many of these numbers are based on best guesstimates. Applying the earnings per square foot of your current location may be a starting point in estimates, but many variables from the parking lot and street out front to the loading dock and your warehouse area affect that number. Calculate carefully.
In those calculations, determine whether you will need a loan, what the details of that might be, and other ways to pay for the new location and the inventory inside. The size of the new location can also determine how much inventory you will need to buy to continue — or increase — your existing business model. You must also take a look at the industry and trends, especially the online versus brick-and-mortar models.
If the second business location was being used for something other than a hunting retail location, you must also factor in working to call attention to the new business there. This can be more costly than purchasing a business that is currently operating in your same industry and market space. The least expensive route, obviously, is to purchase a competitor and simply change the name on the front of the building if you wish. If the business is operating in your market segment, determine why it is being sold. It’s a fact that some neighborhoods do not support certain businesses because of controversies, past business events and other factors beyond your control.
When doing your due diligence on second or third locations, let your current employees and possibly a business broker and your accountant help determine the numbers — and the potential. Expect to sign a confidentiality agreement before the current owner or owner’s representative will discuss any numbers or customer-base details. Have them also sign one covering your information.
If you work with a real estate professional, be certain they provide numbers and details from street departments, electrical utilities and city councils or county commissioners. Get these numbers in writing, and make calls and confirm the numbers and details. Don’t leave any stones unturned, or you could be in for a big surprise months from now, such as an ordinance that will be implemented that bans the sale of guns or ammunition in that location. You need to research and determine if a change in ownership requires updates to the building, including fire suppression, restrooms, disabled access and long list of upgrades. Studying local business codes and noting any grandfather clauses could save you from surprise expenditures in the future.
A Detailed Look Inside
If you do buy a business that is similar to the one you currently operate, take a hard look at what’s inside and on the shelves. Make notes on inventory, its quality and potential to sell, the fixtures used to hold and display that inventory, and security and storage, and note any outdated goods. Make written notes about repairs or modifications you would make to update the building or floor plan, and estimate those costs. Get a look at the current business’ tax returns and operating budgets.
It also pays to legally require in writing as part of the contract and offer that the seller — and key employees — stay on location and work for a month (more or less) so you can be introduced to the client base, suppliers and vendors there, along with learning about important times such as the garbage pickup schedule, other key successes the business profited from, and even some programs or policies that were failures. You may also put in writing that the current owner and key employees not open another location or work for competitors for a year or more. Key insights from the current owner, managers and any employees can save you time and money because you do not have to reinvent the wheel in that location. It is smart to include a clause that after 30 days — or a set time period — that you can walk away from the deal if you discover a serious discrepancy or hidden operation expense. A good business lawyer can help with these details, but you need an exit if you suddenly learn something that was not disclosed that means more operating costs or major losses.
Keeping owners and employees on site will also help with meeting the new customer base. An introduction by the exiting owner can help customers learn a change is coming while also helping you determine details on that local market. Those customers will be your new profit center, so listen to their comments and pay very close attention to when and what they buy. This could help you also determine what to stock and sell.
Another thing you will need to understand and see numbers on are any current employees in the business, customer lists and lease agreements. These are all details that need attention and can help you make a solid — and profitable — business decision. Look also at local taxes, local minimum wage numbers for any employees you may keep, and other numbers that can add to your costs before you ever open the front door for business operation. Get your accountant and business lawyer involved in these steps.
Compare Apples to Apples
Comparisons of similar businesses and your current business is a great starting point with numbers and details. Compare the business and location to others that have sold in that neighborhood or region. Vacant building per square foot sale prices are a good starting point if no inventory is involved. Be certain the business comes with assets and not just a name or a building shell. You also need to determine if shelves, certain fixtures, the garbage bin out back, or the alarm system are owned or leased. Get these details in writing, and if you are looking at the current business’ operating numbers, look under monthly and yearly payments to find leased equipment or other often undisclosed numbers. It’s not that the seller may be hiding those details; it’s often the case that the numbers and costs have been paid so long that they are just a standard cost of business.
If you find a business or building that is becoming favorable in your view, you will also need to develop a business plan there to include marketing and sales plans. This new location may also require something your current and first location may not — a manager’s salary. Remember, your time is money, so plan to use it wisely in your current and additional locations.
With the right information, determination and experience, you and your team could successfully acquire and operate a second business or location and grow your bottom line. Remember also the quote from John McGrath: “The greatest competitor you’ll ever come up against is self-doubt.” Expansion is exciting.
