The (difficult) second site: things to do before you open your second restaurant (1 of 3)
The second site is really tricky.
In fact, expansion can kill great restaurants - adding a second site to your set up can often sink the whole lot.
But why is that? Let's set the scene
You own a restaurant (or coffee shop. or bar)
And you've nailed it - customers are happy, staff are great and the place looks brilliant.
Kudos - it is no easy thing to do.
Now you have started thinking about opening a second site, and why not? If you want to make the big bucks, you need more than one restaurant don't you?
And let's be honest - the first site isn't exactly as you pictured it, is it. You are in an off pitch location. The site isn't as big as you'd like. You wish you had more outside seating. Whatever it is, you can do it better second time round.
So what's the problem?
Why is the second site so tricky? You've done it once, so you can do it again, right?
Actually, adding a second site doubles the problems you face on a daily basis. Whilst halvng your time. And decimating your cash flow.
By daily problems we're talking about staffing, quality control, service standard etc.
Let's have a look at how these things can go bad - below is a fictional example, but it is remarkably similar to the collapse of three small restaurant groups in 2018.
You open a site. You've done amazingly well. Through sheer grit and determination you have created something that is loved by locals and your staff love being there. It didn't cost you too much (you didn't have the cash) so you stripped back your concept and it works.
You've had an amazing 24 months - you've tapped into something. It's time for the second site.
This site costs more though. You've gone bigger (you're always turning away customers so you know you can fill it) and now you are more confident in your numbers you risk a higher rent, so you are right on the high street you always wanted to be on.
The site is costing more than you expected so you've had to get a loan.
Once you open you find that the new site is not taking as much as the first site does now - it's increasing each week but it is taking longer than you thought. You never seem to have any money in the bank so you get another loan.
Site two is looking great after a few months - booked solid most weekends.
You hear about a fantastic site in the next town over which has just come on to the market - so you go for site three. Again, you need a cash boost for fit out and initial cash flow of the new site so you get another loan.
Work on the third site has just started and you realise that you have almost no money in the bank?!
That doesn't make sense, your loan cleared not long ago.
You spend some time looking through the numbers and realise that site 1 is no longer making the money it once was. And after looking a bit more you realise site 2 is actually loss making.
In a few weeks you are out of money. You now have 4 high interest loans and your suppliers are calling your mobile every day trying to get paid. No one will give you any money. Your next call is the administrators.
And it could have been avoided (in the fictional case and in the case of the groups that went bust last year).
If you're on top of your numbers you'll see what is going on in the business each week - you can avoid getting into a position where you are over committed
It doesn't have to be like that
Plenty of groups, of course, grow beyond their first site (and second and third) very successfully. If you boil down the problems of opening a second site it comes down to
The big cash problems you will face is
fit out costs of a new site (you can read more on fit outs here - if you have only ever opened 1 site, do give it a read)
Initial cash requirements of a new site (stock, staff training etc)
Additional costs you will incur in the original site (due to the second site)
Day-to-day cash if the second site is not going well (here's an article on sales forecasting if you're interested)
The impact here will depend on how you are spending your time with just one site. But the things you typically see are:
maintaining standards at the first site & second site
understanding business performance of all sites
lack of time to invest in the new site to get it up and running
Managing staff / customer / supplier issues
How do I avoid these problems?
Essentially, if you open a crap second site and it loses money each week, there is not much you can do. It will suck life out of your business until the whole thing goes belly up.
But you picked a good first site, so you would hope you have an eye for picking a site.
And you can structure your company and the acquisition of the second site in such a way that you can cut it away if it goes really bad. It would still be horribly painful, but you'd live to fight another day (speak to an accountant or a lawyer on this for more info).
Great - anything else I can do?
Assuming you pick a semi decent second site, there is loads of things you can do to ensure you are keeping on top of what is going on in your business.
Employ the right team
Use monthly and weekly figures to monitor the business
Know what 'good' looks like and ensure everyone else knows what this is
Use a proper cash flow forecast
Cost out the new site correctly
In the next two articles we'll be looking at the detailed steps you need to undertake before you open the second site and the steps you take once the new site is open (hint - we're accountants, so we're going to tell you to get on top of your numbers - this makes sense - you should already be on top of your operation! If you're not - sort that out before you think about a second site!).
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