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5 Key Things to Consider Before Expanding Your Business to a New Location

Before opening another location in a new city, business owners need to research and determine various factors that could impact future sales and profit margins such as labor costs, tax implications and logistics.

As the Federal Reserve continues to lower interest rates, expansion costs remain low, especially for owners seeking a small business loan or to refinance an existing new loan. But expansion comes with many risks.

Conducting due diligence will ensure a smoother transition and increase the odds that opening a second location will be profitable. Expanding in different regions allows many companies to remain competitive and offer additional goods and services.

1. Research new markets

Conduct a deep dive into your current operations, especially if your business is dependent upon specific suppliers. Find out where your existing vendors operate and consider expanding into those markets, said Stephen Schober, CEO of FlannelJax’s—an axe-throwing entertainment center based in Minneapolis-St. Paul, Minnesota—and Metal Supermarkets, a Canadian company that sells metals such as steel, copper and bronze.

Businesses also need to understand their current customer demographics and identify other markets that have similar demographics. When you are marketing to a different region, examine any differences in regional demographics and the target customers.

“If you can find a common denominator across target customers, then you need to focus on what works,” Schober said. “Otherwise, a good advertising or marketing agency can assist with this.”

Before business owners go into a new market, make sure that you can replicate your prior success and not reinvent the wheel, said John Blake, a CPA and partner at accounting and advisory firm Klatzkin & Company LLP.

“Figure out what cash flow will be needed to penetrate the market, know the market, train employees to follow the established company culture and build your brand,” Blake added.

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