Is it Really Time to Considering Building or Purchasing a Second Location?

Are you finding that you have a high demand for your services and you can’t always accommodate all the requests?  If so you may also be looking at options such as building or buying a second location.

Before you do that you might want to stop and look at a few things first.  Have you really reached your full potential as far as generating revenues at your existing facility?   By adding a second location you are also increasing your overhead costs, by focusing on your efficiencies and revenues where you are the increase goes right to the bottom line.

A few things to look at:

Annual Occupancy Ratio-This number is going to vary widely depending on the time of year.  While those high occupancy summer months and holidays definitely suggest a second facility would be profitable, don’t forget to consider the off peak time periods when the entire facility is operating at very low occupancy rates.

Local Municipality Requirements-Just because you have an on-going business in your market does not mean the local bureaucrats are going to hand you another license in another location.  Often this process can take months or years to wade through.  You may also find that the requirements have changed which usually drives up the costs.

Organizational Requirements-Doubling your size usually means doubling the size of your organization.  Are you ready to manage twice as many people?  You can’t be in two places at the same time; how will you divide your time?  Often, this kind of growth requires a complete re-tooling of the management structure to take advantage of the economies of scale that multiple facility operations can offer.

Capital Requirements-Doubling your size generally results in a need for more working capital.  Will your current credit situation accommodate this?

Exit Strategy-An increase in the asset base of most individuals’ often forces a review of one’s exit strategy.  How will the additional assets be treated in your estate?

For many adding an additional location may be a very feasible way to expand your business.  We just encourage you to take a good hard look before jumping into another project and expanding your locations.  If you were to focus the same time, money and resources into your existing business that you would spend to open a second location what would the potential positive impact to your business be?  Many times there are very lucrative opportunities in our existing business that do not necessarily require a second location.  Take the time to review your current situation prior to jumping right into another project.

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