Freelance
By Kaye Patchett
Tucson Business Edge
You expanded by leasing the empty store next door and filled it with inventory. Where is everybody?
Investing in expansion won’t help if extra customers aren’t there, said Kerstin Block, owner of Buffalo Exchange resale fashion stores.
Since Block and her husband, Spencer, opened their first store in Tucson in 1974, the business has expanded into 25 stores and six franchises in 10 states, with revenue totaling $33 million-plus in 2004.
Expansion has been a learning process, Block said.
“We had lots of things that didn’t work,” she said.
Doubling a 200-square-foot store by acquiring neighboring space backfired.
“We didn’t get more customers. We just got more rent,” she said.
Before expanding, wait until a location is inadequate to serve existing customers, she advises.
“Grow your business in an organic way,” she said.
Business consultant Alan Warshaw, president of Small Business Services, suggests “building bridges” before expanding too much.
“Before you go national, go regional,” he said. “See how it is to own a business two hours away. Before you go to New Jersey, test it in Phoenix.”
Warshaw offered this advice for business expansion:
“You need a new business plan,” he said.
Don’t expand based on outdated information.
Investigate the competition where you want to expand.
Notice trends: How are similar local businesses doing?
If you’re manufacturing a new product, establish a market before investing in expensive machinery.
Research your product thoroughly, and don’t overextend financially. Warshaw recommends having backup funds to cover expenses for up to a year after expansion.
Doug Horner, owner of the Ordinary Bike Shop, 311 E. Seventh St., moved to a larger location a year ago after outgrowing his sales and repair shop on nearby Fourth Avenue. “Customers were tripping over each other,” he said. “We had more demand than we could handle.
“I got lucky and everything worked out, but it was a big decision. The old location had really served me well.”
Horner’s biggest concern was alerting customers before the move.
“We still have people coming in and saying, ‘I couldn’t find you,’ ” he said.
Horner budgeted for three to four months of low or nonexistent sales.
Planning and a loyal customer base resulted in just a slight drop in sales the month after the move, followed by a steady increase, he said.
When opening a second location, “you double your workload,” said Erica Frisby, who owns Las Cazuelitas de Tucson restaurant, 2615 S. Sixth Ave.
She opened a second restaurant at 1365 W. Grant Road last year. The sheer time and effort required to run the second eatery was hard to anticipate, she said.
“We had to stretch ourselves in two places when we moved,” she said.
Costs of outfitting a new location can prove equally unexpected, Block said.
“Fixing up the space the way you want can run $20,000 to $100,000,” she said. “Painting, floor covering, counters, repairs – that stuff adds up very quickly.”
Expansion can be risky, said Ventana Auto Glass owner Bob Clarke, who expanded to a second location at 231 W. Ajo Way after four years in leased space at 2510 W. Wetmore Road.
The key to successful expansion is to take well-educated risks, he said.
Clarke didn’t revise his business plan before expansion, but with 10 years of management experience and business he could count on, he felt confident.
Building a good relationship with his bankers was important.
“You have to be comfortable and know how to talk to them” Clarke said. “They have to know that you know what you’re doing.”
Expense was his foremost considerationin expanding. “I wanted to keep it at a certain percentage of my revenue, about 2 to 3 percent.”
His budget took into account extra equipment to handle increased business.
“Tools, equipment and in our business, vehicles,” he said.
With a strong foundation and correct planning, expansion makes for a healthy business, Clarke said.
“As long as you’ve got your feet under you, then I would say go full steam ahead,” he said.
Signs you’re ready to expand
* You are succeeding at your location
* Space is inadequate to meet customer demand.
* You’re prepared to meet challenges of expansion.
* Finances are solid. You have a good relationship with a bank and are aware of alternative financing sources.
* Revenues are sufficient to cover expenses until your new location gets on its feet, typically six to 12 months.
* You have a first-class team you can rely on and you know where to find specialized employees for expanded needs.
Source: Alan Warshaw, president, Small Business Services
Tips for smooth expansion
* Make a new business plan and put it in writing. It’s more of a commitment that way.
* Know what you’re getting into. Don’t expand for the sake of expansion if customers aren’t there.
* Do homework: If you’re a retailer, check out demographics, competition and trends in the chosen location.
* If you’re a manufacturer adding a new line, be familiar with your new product. Which lines compete with it? Can you sell it to existing buyers?
* Have competent legal and accounting advice available: Existing problems will be made worse by growth.
* Check business and personal credit. There could be a mistake in your credit report that needs straightening out.
* Be aware of how much you will need to spend. Budget for inventory, building-renovation costs, fixtures and fittings, and salaries for added employees.
* Think ahead. You may wish to expand more. Allow for growth when planning warehouse space and advertising needs.
Source: Alan Warshaw, president, Small Business Services