I am in a position where we are thinking of expanding our service business. We currently have 4 locations. Opening a new location costs about 100K, which is a mix of (majority) capital expenses, rent, labor and marketing. Each location produces about 30-40% profit margin at scale, which takes about 18 months. The business, has net profit margins of around 10% and gross sales of around 1.2M last year and we expect it to be about 1.5M this year (we opened a new location last year which is where the increased revenue comes from)
As we open more locations, our net margin improves as our corporate overhead is fairly fixed. We have not had consistent growth, some locations are performing better than others.
We currently are servicing a debt of about 90K, at 7% interest, paying about 3500 / mo, paid off in about 24 months.
We keep very little capital in reserve – about 150k.
My staff wants to push ahead and open a new location. I am fairly confident that the new location will be profitable in the time frame that the other locations have. However, I am concerned, as the business owner, that we are adding too much risk. I would like to increase our cash reserves but that would mean slowing or even stopping growth for at least a year.
I have googled this, but can't seem to figure out what "standard" is in terms of our finances. Would love to get feedback on our situation and advice on how to best improve our financial situation.