If you’re a brick-and-mortar business looking to generate scale, at some point you’re likely to consider multi-site expansion as one of your available options. Multi-site expansion offers tremendous opportunities, however it also entails risk and potential pitfalls. In this article, we provide you with some of the different multi-site models, major pros and cons, and key considerations for opening and operating additional locations.

Firstly, there are four distinct methods or ownership models for multi-site expansion:

1. Company-owned – Additional sites will operate as an extension of the existing business. It requires large financial resources but when implemented properly produces high profits and capital gain.
2. Franchising – A franchisee pays for the rights to operate one or more sites of a business. They must follow strict rules around branding and processes to maintain continuity across the entire group. This requires a lot of upfront investment from the franchisor (business owner) but can help scale quickly and more broadly as they do not need to operate each individual site.
3. Licensing – This involves charging people or businesses to use your brand and/or other intellectual property. Be it a recipe, product, service delivery system or technical process. You will receive a one-off or ongoing royalty for use of the intellectual property.
4. Partnerships – Partnering with another individual or organisation to create synergies and access new markets. This option is generally limited to large professional services firms.

Utilising multi-site expansion to grow your business can offer significant advantages. Aside from access to new markets and prospective revenue growth, business owners may also see one or more of the following benefits:

• Greater staff retention – more sites means more available roles. This gives your employees better opportunities for promotion and on-job upskilling. Increasing the likelihood of them staying with the organisation.
• Economies of scale – sharing costly resources across locations can help to reduce operating expenses and increase ROI. Shared assets may include Accounting, Human Resources, IT and Marketing.
• Diversified risk – minimise the risk of disruption to the entire business as issues may  be isolated to just one location.
• Wider talent pool – greater geographic reach doesn’t just provide access to more potential customers, but also to a larger group of prospective highly skilled staff.
• Innovation – a broader and more diverse team, new location and refreshed work environment can inspire new ideas and approaches for meeting customer needs.

While this all sounds very exciting, managers and founders need to be aware of some of the downsides to multi-site expansion and put in place strategies to overcome them.

• High upfront costs – opening an additional location incurs extra rent and building, refurbishment, staffing and many other costs before the new venue has established a revenue base.
• Communication difficulties – managing internal communications and keeping all staff informed on the business and its direction can be a challenge when operating across multiple locations.
• Operational challenges – managing teams and operations across sites poses several issues for management. Implementing strong processes and IT infrastructure will help minimise any associated risks.
• Increased strategic thinking – an important facet of running a business across multiple locations is to understand each market intimately. What drives one won’t necessarily hold true for the other(s).

Looking ahead, you now need to decide whether a multi-site expansion strategy is appropriate for YOUR business. To do this, you will need to take an honest examination of your current business model and ask yourself the following: can the business be duplicated or am I (or current on-site individuals) essential to its day-to-day operation? How strong is our existing location? Does a significant market exist where we intend to expand? Do we have adequate funding to finance the expansion? And are there any other growth alternatives available that require less capital outlay?

To determine if your business can be duplicated, first examine whether it can be run independently of you and other key individuals. If your involvement is critical to the success of the business, it is unlikely to operate well without you. You can test this simply by asking, do our customers insist on dealing with me directly? If the answer is no, your business is a candidate for expansion. If the business simply doesn’t exist without you there to manage and operate it, then you will need to invest in standardising your processes. Allowing other staff in the business to provide the same quality of product or service that your clientele has come to expect.

Measuring the strength of your existing business or location will help to assess the viability of opening an additional site. To do this, you will need to evaluate whether you’re currently generating an operating profit – that the business is profitable, and most of the revenue comes from the core operating functions of the business. Next, examine the keys to your current success, and if these factors can be transplanted to a new location. For example, there may be other local referral partners and complementary businesses near your existing location that help to generate and sustain potential customer traffic. This lead source may need to be replaced with marketing activity at the next site, or does the proposed new location offer access to an even larger pool of potential customers?

Performing market research around any proposed new location is essential to setting the business up for success. You will need to ascertain the strength of existing demand as well as current and anticipated competition. Does your current marketing and branding strategy resonate with this new market, or do you need to adapt to make it more appropriate? Ideally, your market research will include test marketing. Including, if possible, pilot test sales of your products and services in the proposed new target market. Finally, look at what potential changes from your existing site you might implement to improve the performance of a new location.

Funding the next phase of your business’ evolution is a crucial element and all sources of finance should be secured prior to initiating the expansion. This might include loans, external investors and/or your own capital contribution either from savings or profit-share from the existing business. Remember, it is highly recommended to never count on your existing location to fund other projects. You should consider the new location as a separate business venture.

Lastly, before making a final decision on your expansion strategy, consider any other appropriate growth alternatives. For example, it may be worth investigating whether you can provide your goods and/or services online. Building a simple website and directing traffic there with some paid advertising can eliminate the need for considerable funding and risks associated with opening a physical location. For many businesses, the web and e-commerce can offer access to a large number of potential customers at a considerably smaller investment.

Whatever you decide to go with, your final decision must be based on sound business logic, not simply your desire to replicate your current success at a new location.

If you’ve reviewed the risks and benefits and decided that geographic expansion is definitely the right course of action for you and your business, then the next step in preparation is to systemise (and even automate or outsource) specific parts of your business. This will ensure consistency across locations and make running the business much smoother. Key functions to consider for this are Accounting and Finance, Human Resources, IT Management, and Marketing and Advertising.

Accounting and Finance

Standardising your accounting is an absolute must when running a multi-site or franchise business. Ensuring consistent financial data and reporting drives informed and accurate decision-making across the entire business. It also makes benchmarking locations, measuring relative performance and on-time BAS lodgement across the group a much simpler task.

To guarantee best practice and help grow your business even faster, you may want to consider outsourcing parts (or all) of your accounting function. There are plenty of great providers across Australia that are often more affordable than hiring and managing an in-house team and can deliver a better result.

Human Resources and Recruitment

Arguably, the most valuable assets to a business are its people. Getting the right ones in the door is essential to the ongoing success of your business. Standardising the recruitment process and what characteristics you look for in candidates will not only ensure you have the right people for the job but also builds the right culture to support your business and the people within it.

IT Management

We live in a digital age. And a robust digital infrastructure is critical to successfully operating a business across multiple locations. Having a simplified software solution for each business requirement, and training staff to use it competently, will ensure that your business runs smoothly. Also, providing a unified process for accessing IT support, whether it is a broken wi-fi connection, misbehaving hardware/software, or something more mission-critical.

Marketing and Advertising

While there may be nuances to how your business interacts with customers across markets, your brand and its overall message should be clear and consistent regardless of location. Implementing a standardised process across all marketing and advertising activity will ensure that nothing goes out that is off-brand or detrimental to your business’ public image. Again, much like accounting and finance, you may wish to outsource parts of the marketing function to avoid paying for resources that you don’t need in a full-time capacity.

Moving your business into its next major stage of growth is an exciting time. While it is easy to race ahead with progress, it is integral to the sustainability of your business that you consider your expansion strategy options carefully and make a decision that is supported by sound business logic and rationale. The first step in any journey is to weigh up the pros and cons, evaluate the current position and map a route forward that best suits you and your business.

If you would like to discuss how Aretex and its Accounting and Finance solutions can help with your next phase of growth, get in touch for a free consultation.

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