Whenever a restaurant finds success and a solid customer base at its original location, the idea of expansion usually starts creeping into the restaurant owner’s mind. Expanding into a second location has its pros and cons, depending on the health of your business right now and the strength of the market at large.
Opening a second location is one of the ways to grow your business that comes with a steep, upfront price tag, but that could also mean the rewards are just that much higher. Whether or not a move to expand is right for you comes down to research, assessment of your current business, and very careful planning.
Consider your current restaurant.
Often what makes a second location fail is not knowing what’s truly working in the first location. Since your restaurant is successful enough for you to start thinking about opening another, really take a look at your business as it is now.
What’s working for your current restaurant? Is it the menu? Is it the lack of direct competition for your brand? Is it your stellar front-of-the-house staff? Is it your specific connection to the community? What is on your wish list on your current operations, larger prep area, extensive bar offering, etc?
Doing research on your own restaurant (both your numbers and what your guests are saying about your restaurant) will tell you what you want to replicate at your new restaurant and what you want to improve on with this new venture.
Research your area.
While jumping into expansion headfirst can seem thrilling, doing thorough research into your geographic area and its needs is crucial to making the right choice. After all, it might seem like a no brainer to open a new restaurant if customers already love what you’re doing, but doubling your locations doesn’t automatically mean doubling your profit. There is a risk you’re simply spreading out your current guest base instead of gaining new customers.
What’s the marketplace like in your community? Are other restaurants doing menus or trends similar to yours? If you do open a second location, will it get lost among the other restaurants at that location? And speaking of location …
The phrase “location, location, location” is just as important when picking out a place for your second restaurant as it was picking out one for the original.
As mentioned above, you can learn a lot about the necessities for your new location by looking at your current establishment. If you already have a great location, brainstorm what’s great about it (close to public transit? In a densely populated area? Constant food traffic?) and try to match those qualities in another area when searching for rental properties. If your current location has flaws, write down what you wish was different about it and try to look for locations that solve those problems.
Next, consider how far away you want the second location to be from your original restaurant. Knowing where your current customer base is coming from is key to understanding if it’s too close to your first restaurant. You might only end up serving your current customer base and cannabolizing sales from your original location. If it’s too far away, you could lose brand recognition and it could be harder for you as the owner to visit both locations on a regular basis (which you’ll want to do regardless of relegating out daily manager duties).
Be prepared to hire a whole new staff … and managers.
It’s easy to forget, but when you expand into a whole new restaurant, you’re going to need to essentially double your staff. You should be preparing to not only hire on front and back of the house, but also hire on more managers. If you’re planning to split your time in between both locations, do you have managers at your restaurant now that can dependably run shifts without you? (link to handing over the reing article you wrote?) Are you prepared to give up some of those responsibilities in order to oversee an expansion and all of its financial and managerial implications?
That being said, not all of your new staff need necessarily go to your new restaurant. If it’s feasible, start talking to your senior level employees and current managers about possibly moving over to the new location.
Then hire some employees to replace those at the first restaurant, as well as some employees to fill in the rest of the positions at the new restaurant. When you blend new and existing staff at both locations, the training curve gets shorter: veteran staff members who know the business can help guide the newer staff as they get trained up.
It might be prudent to do some shorter refresher training sessions for your current employees at the same time that you’re also training new employees for the first time. That way, everyone is on the same page, and any erosion of “the right way” to do things can be corrected before being passed on to new staff.
Get your finances (and financial mindset) ready.
One of the biggest factors to be careful about when planning for restaurant expansion is the state of your finances. You need to make sure you have adequate funding up front (nothing hurts a business like running out of cash mid-plan), as well as assess if there will be capital available down the line to offset slow growth of a brand new establishment. It’s important to have a cash reserve when you begin the process, and be wary of financing the development of your second restaurant with the ongoing profits of your first. This is a recipe for disaster if the market suddenly turns or you face unanticipated setbacks at either location.
Know your limits and your key metrics for measuring success. Closely monitoring the finances for the new property will help you avoiding getting in too deep, but knowing your financial benchmarks but will help you know when you’ve hit an important goal in this business endeavor.
Rewards Network is uniquely poised to provide cash funding to established businesses looking at their next stage of growth. Our approval process is fast and easy, with payment based on the ebb and flow of your business — unlike small business loans that can come due no matter what the state of your business.
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