Growing Your Business with a Brick-and-Mortar

For many business owners, a brick-and-mortar location is a major milestone. After years building an online store, selling through social media, or running your business from home, you may now be wondering whether it’s time to give your customers a place to visit in person.

Opening your first physical location can create new opportunities to grow, but it also comes with expenses and responsibilities you may not have encountered while operating online. And rent or a commercial mortgage is only the beginning. You’ll also need to think about things like location, buildout costs, staffing, inventory, utilities, and how the added overhead will affect your cash flow.

For helpful tips on how to navigate the transition, we’ve enlisted the expertise of Juan Rosales, Community Banker here at Amplify Credit Union. Throughout this guide, Rosales shares his advice on preparing financially, finding the right space, and making the move from online to brick-and-mortar.

Is your business ready for a brick-and-mortar?

If your online business is growing, opening a physical location probably feels like the natural next step. But growth alone doesn’t necessarily mean that you’re ready to take on a storefront. 

Before we get into the costs and financing options, take some time to think about what a physical location would actually do for your business. Ask yourself a few questions:

• Is there demand from customers who want to shop or work with you in person? 
• Are you running out of room for inventory or production?
• Could a storefront help you reach customers you aren’t currently reaching online?

Next, look at whether your business is financially prepared for the change. A brick-and-mortar location introduces fixed expenses that you may not have today, and those bills will still need to be paid during slower months. 

Rosales says that opening a physical location can be an exciting sign that your business is growing, but you want the numbers to support that decision. “Look at your current revenue, cash flow, and savings. You should feel confident that the business can handle the added expenses without relying on the new location to be profitable immediately,” he says.

If both the business case and financials make sense, it may be time to start putting together a more concrete plan. That starts with understanding just how much your new location could cost.

Costs of Opening a Brick-and-Mortar Business

Once you’ve decided that a physical location makes sense, the next question will be whether you can afford it. The cost of going brick-and-mortar will vary considerably depending on your location, industry, and the type of space you need.

Start by separating your budget into two categories: the upfront costs of getting your location ready to open and the ongoing expenses you’ll take on once you’re there.

Upfront costs include:

• A security deposit or down payment
• Renovations and buildout
• Furniture, fixtures, and equipment
• Signage
• Permits and licenses
• Additional inventory

Ongoing costs include:

• Rent or a commercial loan payment
• Utilities
• Insurance
• Payroll
• Maintenance

Some ongoing costs may be the same as running your online business, others may be new. Be sure to factor in both.

“It’s easy to look at the rent or purchase price and use that as your starting point,” Rosales says. “But you need to understand what it will cost to get the space ready and keep it running each month. The more complete your budget is upfront, the fewer surprises you’ll have later.”

Rosales also reminds business owners to build in some breathing room into the budget. Unexpected expenses are almost inevitable when opening a physical location, and sales may take some time to ramp up. Having cash available after opening helps your business manage those early months without putting unnecessary pressure on day-to-day operations.

Decide Whether You Want to Lease or Buy

One of the biggest decisions you’ll make when opening your physical store is whether to lease a space or purchase commercial property. There are advantages and disadvantages to both, and there is no one right answer for everyone. It all comes down to your finances and long-term plans.

“For a first location, think about where you want the business to be several years from now,” Rosales recommends. “You don’t want to make the decision based only on what works today. Consider whether the space will still fit your needs as you add employees, serve more customers, or expand your operations.”

That said, leasing is often the more flexible option. It requires less cash upfront, which can leave more money available for things like renovations, equipment, and other opening expenses. It can also give you more flexibility if your needs end up being not exactly what you anticipated.

Buying a property, on the other hand, gives you more control over the property and allows you to build equity over time. However, purchasing commercial real estate typically requires a larger upfront investment. Plus, you’ll have to take on the responsibilities that a landlord would otherwise handle, like large repairs and property maintenance.

“The ultimate goal is to find a space that supports your growth without stretching the business so thin financially that there is little room for anything else,” Rosales says. “Whichever route you choose, make sure that the costs fit comfortably within your budget.”

Paying for Your Brick-and-Mortar Expansion

Once your budget starts coming together, the next step is to start thinking about how you’ll pay for it. Depending on your business’s finances and the size of your expansion, you have a few options:

• Use business savings: Paying with cash can help you avoid taking on additional debt and monthly payments. 
• Finance the expansion: Financing allows you to spread some of the cost over time. The right business loan option will depend on what you’re paying for. For example, a commercial real estate loan may help finance a property purchase while other business loans or lines of credit could help with equipment, renovations, or other expenses.
• Use a combo of cash and financing: You don’t necessarily need to choose one or the other. Putting some cash towards the expansion while financing larger expenses can help you limit how much you borrow without using up reserves.

“What might make sense for your business won’t necessarily make sense for the next,” Rosales explains. “The important thing is finding a balance that lets you invest in the new location while still keeping enough working capital available to run the business.”

Before choosing an approach, consider how a new loan payment would fit into your monthly cash flow and how much cash you want to have available after opening. A local business lender can also walk you through your options and help you understand your options to help you understand which types of financing may fit your plans.

Preparing Your Business Banking for a Physical Location

Paying for your new space is only one part of the financial preparation. Moving from online to in-person sales can change how money flows in and out of your business, so this is also a good time to make sure your business banking setup can keep up.

Before opening your doors, consider whether you’re prepared to:

• Accept in-person payments: If you’ve primarily accepted payments online, you may need to set up merchant services or a point-of-sale system that allows customers to pay by card in person.
• Manage cash and deposits: A physical storefront may mean accepting cash for the first time. Think about how you’ll store it, make deposits, and give employees appropriate access.
• Pay more vendors and employees: Business banking tools like ACH payments can make it easier to manage additional transactions.
• Protect your accounts: More employees and transactions can also mean more opportunities for fraud and mistakes. Ask your business banking team about tools that can help you control account access and monitor accounts.

Rosales says that your banking needs can look very different once you have a physical location. “Talk with your banker before you open so you can make sure the right accounts and tools are already in place,” he advises. “You don’t want to be figuring out how to accept a payment or make a deposit for the first time after customers start coming through the door.”

Take Your Business to the Next Level

Opening your first brick–and–mortar location can be an exciting way to grow a business you’ve already built online. But you don’t have to make the leap all at once. Start with the numbers, explore your options, and make sure the move fits both where your business is today and where you want it to go.

“The goal isn’t just to find a way to pay for a new location,” Rosales says. “You want to make sure you’re setting the business up to succeed once the doors are open. Having a solid financial plan gives you more room to focus on growing into the space.”

If you’re ready to start planning, a local credit union like Amplify can help you evaluate your options and determine what makes sense for your budget and goals. With the right financial plan in place, you can focus less on how you’ll fund your new location and more on what’s next. 

This article was originally published on June 28, 2021.