Pros and Cons of Expanding a Residential Lighting Business
Small business counselor Mike Munz gives a list of things to think about before expanding your current business.
 

Residential Lighting: If we’re itching to expand, where do we start?

Mike Munz: A person who thinks about expanding—adding a second location, square footage or product lines—should first write a business plan. Get the idea on paper, so partners, investors and employees all have a clear picture of what you’re trying to accomplish. Map things out, and don’t work off a napkin.

This becomes important getting financing. Rather than taking your profit-and-loss statement to the bank and asking for a loan, have a game plan. How will your performance really be different? I once ran multiple stores, and I can tell you that multiple stores don’t always end up with the best profitability. Sometimes it’s better to take an existing store and make it more productive.

RL: Are you dissuading us?

MM: No. Just make sure your current business is profitable and that you have adequate cash flow. Do a pro forma: It will cost “x” dollars to add a location or a new product line. Are you expanding to get additional sales? Do you think a lot will flow to bottom-line profit? Or are you doing it from a competitive standpoint to create differentiation from the guy down the street?

RL: What concerns are specific to opening another showroom?

MM: As an owner and entrepreneur, you are the business. How will you duplicate yourself in that new showroom? You have a following with your current clientele. They come to see you. You are the product differentiator, and you can’t be in two spots at once.

Depending on how far the second location is, you may be able to hire new people and have them work in the present location. Then they see firsthand how the business is run and your expectations. If you are 50 or 100 miles away, maybe that won’t work. You might bring them in for a few days, but you have to have pretty good interviewing skills and communicate your expectation levels to them.

Talk to fellow retailers: “Where do you get employees? Who are your current employees? What are their backgrounds? What do you feel you have to pay in your community to get a quality person who will offer good service?”

RL: How should we select a site?

MM: Some retailers pick a location because they feel the rent is right. But you may not have much target market around. As a rule, people will shop within a 6-mile radius. Profile your customer. Are they redoing their houses? Building new homes? You can get good data on income levels and new home construction. You might have to pay more rent, but you’ll be in the mix and have sustainability. 

RL: Where can we find inspiration for expansion ideas?

MM: Go to the ALA Conference and develop networking contacts.

Look for positive things, what within the industry represents unique, novel ideas for distribution and marketing. Sales reps for suppliers can be enormously helpful; they visit the competition and can share what others are doing—how they may have [expanded their businesses]. 

Mike Munz is a SCORE Counselor based in Corona Del Mar, CA, who has more than 30 years of experience in specialty retailing. With 389 chapters and 10,500 volunteers nationwide, SCORE—“Counselors to America’s Small Business” (SCORE.org)—is dedicated to the formation, growth and success of small business nationwide and is a resource partner with the U.S. Small Business Administration.

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