Sep 30, 2022 | Growth & Scale

I’m about to lease a bigger space. What should I consider?

Q. Dear Zenagos, I’ve been running a restaurant for 5 years and it’s been pretty successful. We’re thinking about expanding and getting a lease for a bigger space. What should I consider before I make the leap to grow?
–Mia

You are wise to take time to plan before making a big move. When entrepreneurs achieve early success, they often don’t think about how things might change if they expand. It’s easy to get in over your head.

Three key areas entrepreneurs should always consider when scaling the business are: costs, revenue, and process. (And, in some cases there’s a fourth: location.)

Costs
We recommend that our entrepreneurs plan their costs for three years in advance. You’re often just guessing for years two and three, but it’s a good exercise to think about how things will change in the future. For example, you will almost certainly have higher rent in the new space. You also need to think about one-time costs like build-out costs and additional equipment for the kitchen. Will there be double rent for a period of time, or are you keeping the old location? Be sure to think about how roles that you consolidated before might need to be split and whether you will need more staff overall. And, make sure to plan your cash. Higher costs usually mean that more of your cash is tied up as “working capital.” This can be a nasty surprise if you don’t plan for it in advance.

Revenue
As you make your 3-year plan, figure out your revenue. It’s good to make three scenarios: best case, worst case, and what you really think will happen. It can take a while for a new location to catch on, so you need to have confidence that you have the funds to cover the increased marketing costs during the transition period, while you wait for the revenue to expand with your new space. You may not be able to save enough for the absolute worst case, but if you can’t get close, then you should really consider waiting to expand.

Processes
Even if you can keep your marketing costs the same, you may have hidden costs as your processes change with the new location. Make sure you think about the things you do every day, every week, every month, and every few months. As you go through the list, ask yourself: Will anything change because you expand? Your vendors may charge you based on volume, or a supplier may try to take advantage of your expansion as an opportunity to increase your costs. Try to lock in your rates before letting them know about your move. Remember that you’ll need to train your employees or even re-train existing employees on the new processes.

Location
As a restaurant, your location is critical. Make sure you’ve chosen a location where you can carry over your existing, loyal customer base and there is a nearby source for new clientele. Maybe you’re near an office park or a college.

The list of things to consider is long, but it will help you foresee problems and will give you the confidence you need to make the move. As with any large project, it will be manageable if you put a plan in place early and track your progress. A marathon is just the sum of many small steps that are made possible by thoughtful planning.

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