Opening a new branch office means you are expanding your business. It also indicates paying more for people, space, and inventory. It has the potential to increase profits and revenue. There is a natural tendency to grow larger. However, it is the owner to decide if they want to grow and expand or maintain stable operations.
You’ll experience some difficulties while searching for a new location that would fit your business. But, you can find your new location with the help of a business location expert, holding the most valuable and latest demographic, social, and economic Intel. In this way, you can make smart business decisions in terms of opening a new branch office.
Below are the advantages and disadvantages of having a new branch office.
Advantages of opening a new branch
Attracts new customers
One of the advantages of opening a new branch is to retain and attract more customers. You can add to your portfolio new products or tap the untapped customer markets. Opening new is to reach out to new customers and capture the relationship. A growing customer base is a way of achieving growing profits.
When speaking of new customers, they can be people who belong to different age groups, such as teenagers and seniors. New customers may come from various community and professional roles, such as government employees, healthcare professionals, or blue-collar workers.
Economies of scale
Expanding business or the benefits of opening a branch office is sure to take away the business costs. The profit potential improves by adding new customers, but initially, there is the risk of expanding. Economies of scale are apparent in manufacturing operations. It leads to more productivity and balances as lower costs per unit on shipping, materials, labour, and energy.
If one business location isn’t doing well profit-wise, you can still recover your losses if another branch is gaining highly profitable income. A specific branch location may experience a more impactful economic downturn than the other areas. Hence, your business will still thrive anyhow.
Diversifying into markets
The greatest competition in business growth is to capitalize on the economies of scale. It offers the advantage of increasing the output of production, bringing the cost down per unit, and ensuring savings.
- You can get discounts on buying in large quantities.
- A greater output by spreading administrative or staff costs
- Spreading promotion costs with larger sales.
Business growth enables generating more profits and sales, putting money back into business, and influencing market price. Diversifying into new markets helps to rely on income streams.
Disadvantages of a new branch office
Capital requirements
A business expansion drawback is when resources expand, and a company invests money. This is because the capital available is less for business transactions. The expansion comes with debt obligations. It is manageable if there are consistent sales and timely cash flow. However, any unexpected downturn may result in great strain on business finances.
A larger business requires more facilities, equipment, a larger workforce, and more investment. An increase in the staff turnover expectation may drop their morale and affect your new branch office.
Too thin spread
A risk in opening a new branch office is that it spreads the resources too thin. Getting involved in the products or markets causes the spread of the company. The business expansion makes sense if you have enough surplus resources and people to cover with expertise in new areas.
Business owners feel the impact of expanding business. Making significant decisions about hiring, operations, and so on is a lot of involvement. The business owner should not drift away with the burden and involvement.
Compromised quality
The expansion of businesses is a nice sign. However, it comes with more complexities than doing smaller businesses. There is a shortage of cash that you have to borrow to facilitate the expansion costs. The increase in production leads to quality decline and loss of sales or customers. With the growth of a business, you may divide workloads and delegate management duties. The division between locations and duties may result in compromised quality.
Wrapping Up
It is a must to acknowledge the fact that growth and expansion can be an upsetting force. You need to carefully plan and ask yourself many times if you are ready to grow your business.
With the benefits of opening a branch office, prepare a growth plan for your business. in this way, you can avoid problems arising with the growth of a business. It paves the way to the success of your business and learning the advantages and disadvantages, it is helpful.
