Opening a second location is a big step in the life of your business. It’s not something that should be taken lightly, and definitely not something you want to rush into if you don’t have the resources to do it properly. That said, a second location can be a big money-maker if you do it right. And if you’ve been successfully operating one business location for several years now, managing customers, employees, and payroll all by yourself, and turning a tidy profit while doing so—you may be ready to grow.
While a second, third, fourth, or even more locations may sound like a lot of work to set up and then manage, you may find that the profits surpass your wildest dreams. It’s certainly something to aspire to, no matter the current size of your business. Today, we’ll consider from a legal perspective everything you’ll need to have in order before opening multiple business locations in order to be successful as your business grows.
Before opening a second, or even third location, here’s what you need to consider:
No matter how great your business ideas are, you can’t have a business without funding. As you consider opening an additional location, you should consider how you will afford all the expenses associated with doing so. You’ll need to consider rent, payroll, advertising, as well as the products or services you offer. With all this in mind, you’ll need to answer this important question: Do you have enough capital on-hand to open that second location out of pocket? If so, congratulations! You’re highly successful already and can start looking at spaces to lease.
If not, you’re certainly not alone. In fact, it’s not unusual at all for business owners to pay for their additional locations solely through revenue from those new locations, and not based on revenue from the first at all. If this is the case, you will need to create a business plan for the new location. This will give you the opportunity to solicit outside funding from lenders—or just help you clearly visualize every step of the process you will need to go through to afford this expansion.
Once you’ve determined how to fund your new locations, it’s time to decide how to structure your businesses. Each approach has its own advantages and disadvantages, and your choice may vary based on your needs and your goals for your business. If you want to open an identical business in a different area, for example, your needs may be different than someone who wants to split their business in half and run two separate endeavors. Here are a few of the structure options available to you:
Option 1: Create a separate LLCs for each business
If your second location doesn’t offer quite the same services as the first, whether you intend to serve a slightly different type of food or sell bicycles instead of scooters, then a separate LLC may serve your needs best. This will isolate the risk of each business to that business itself and protect all your other endeavors. While this may sound attractive, this approach comes with all the associated paperwork of creating a new LLC, like business licenses, EINs, and tax forms.
Option 2: Create multiple DBAs under the main corporate entity
Another option is to create multiple DBAs for each of your businesses under the same company. You’re still able to brand and market each offshoot as a separate business, but the paperwork is easier—you have one tax filing, one EIN, and each venture is protected by the main company. That said, if someone sues one of your locations, the assets of all of the other locations are at risk. In this scenario, you may have less paperwork, but you’re also less protected. Using multiple DBAs for separate locations, where just one corporate entity owns everything, is like being a sole proprietor – while the paperwork headache is less, the risk of losing everything you built at your original location because of something that happened at a subsequent location is greater.
Option 3: Create subsidiary companies under the primary entity
If you don’t like the first two options, and envision something more complex, you can establish a holding company and set up subsidiaries. While such structures used to be the norm when dealing with multiple companies and wanting to roll financial results into one overriding entity, but keep liability separate, the advent of series LLCs, has tempered this approach. This isn’t to say that you cannot, or should not, consider this option, it’s just that other options may provide the requisite protection from liability, while maintain easier account methods then creating a corporate behemoth.
The other important question to consider as you expand your business is how will you manage them all? Many people feel that once they have more than one operating location, it may be time to bring in at least an operations manager, if not a partner, to help them run multiple business locations. If you’re considering adding a partner, make sure you take steps to protect yourself, like preparing a formal agreement and an exit strategy. You can’t be too careful when bringing someone else into your business.
These are a few of the legal steps necessary to protect both yourself and your businesses when you’re ready to grow to a new location. Whether it’s your second location or your fifth, funding, structure, and management are all essential elements to consider as you look at expanding. Make sure you have a plan in place before making any major decisions that could impact your current business in the long run.
If you have questions about opening a second business location, contact my office today.