Should I Be Growing at All? Part 2
Michael Davis
Michael Chen
Tapan Patel
Kevin Kim
The financial gut check every operator should do before signing on for more.
If you have already worked through the emotional side of the decision to expand, including your motivations, your personal capacity, and your team’s readiness, this is the next step.
Because even if your heart says, “Yes!”, your financial model still has to back it up. Here’s what to think through before making any big moves.
You Are Not Just Spending Money. You Are Taking on More Risk
Growth costs money. You will be spending real capital on not just a buildout, but on staffing, inventory, and rent before generating any revenue. You might invest hundreds of thousands of dollars before seeing any return on your investment.
If your current business model is already strained, expansion will only increase the pressure. Opening more locations does not fix your problems. It amplifies them.
You can try to manage that with better systems or stronger leadership, but ultimately, that complexity doesn’t go away. It grows with every new unit.
Buildout Costs Are Almost Always Higher Than Expected
Whatever number you are budgeting for a build, expect it to go up. In fact, expect to spend at least twice as much (and twice as long) to complete your next location. This is not an exaggeration. In a survey of owners conducted by Homegrown, we found that nearly three out of four buildouts ran significantly over budget, while two in four buildouts were completed behind schedule.
Buildout costs often exceed projections. Materials are expensive. Labor timelines slip. Permits take longer than planned. In the food and beverage industry, especially, delays can last for months, while rent and payroll still need to be paid. In fact, industry reporting on the restaurant industry shows that supply chain challenges and staffing shortages have extended typical opening timelines from around 4-5 months to closer to nine months in many cases.
One operator we know budgeted $350,000 for a buildout and ended up spending nearly $600,000. And this is becoming the norm for many.
What we’re saying here is: you need margin in your plan. If you do not have room for surprise costs, you are exposing your business to unnecessary risk. When your expansion jeopardizes your other locations, it’s not just your budget but also all of the team members and customers relying on your company.
For more on this, check out our op-ed on rising construction costs in the U.S. or this short video breakdown.
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