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How to Relocate Your Business

Running out of space? In an area that's headed downhill? Need an upgrade? It might be time to move your business to another location.
December 1, 2005
URL: http://www.entrepreneur.com/article/81406

Every year, the grass on the other side of the fence looks greener to many entrepreneurs, and a change of place looks like the most promising path to growth. So they pull up stakes and move to a new place, where they hope to find better odds for business success than they had in their previous location. They're in good company. The U.S. Census Bureau reports that approximately 40 million Americans relocate each year, and the U.S. Postal Service processes about 38 million change-of-address forms annually. Although no one keeps a similar count of business moves, given the multitude of valid business reasons for making a move, almost any entrepreneur will, at some time, consider relocating as a way to expand.

Why Location Matters
Businesses commonly cite five main reasons for moving, according to Sharon K. Ward, an economic development consultant in Allentown, Pennsylvania. These are labor and work force issues, the desire to reach new markets, the need to upgrade facilities or equipment, the desire to lower costs or increase cash flow, and considerations about quality of life. For different businesses and at different times, certain concerns are more important than others, Ward notes. But just about all moves can be attributed to some combination of these issues.

Chief among current reasons for relocation is the need for a suitable work force. You may have a shortage of qualified workers for some occupations, especially those requiring technical expertise. For firms that need specialized employees, it may be well worth it to relocate to an area where you can easily find these kinds of employees.

When a company finds itself in outmoded or undersized facilities, that's another reason to look at moving. Most businesses start in a small facility, such as the founder's garage, and then move to bigger quarters in the same city, says L. Clinton Hoch, director of location advisory services for DCG Corplan Consulting, a site selection consultancy in West Orange, New Jersey. Later, the business outgrows that location or begins to find fault with its facilities, services, utilities, infrastructure or other features. "Usually only after [a business owner] goes through those stages is he or she ready to make a move out of the original area," says Hoch.

    Cost Issues    
Cost is a concern in any business decision, and a move can cure--or create--many cost issues. For starters, the cost of living varies widely among cities. In Little Rock, Arkansas, for example, the cost of living is 13 percent below the national average. At the other end of the spectrum, New York City's costs are more than twice the U.S. average. Theoretically, a move from Manhattan to Little Rock could yield significant savings.

But costs involve more than living expenses, cautions Hoch, and differences in geographic costs have leveled out in recent years. Companies often find themselves forced to compromise between staying close to target markets and choosing the lowest-cost facility. That's one reason for the exodus of employees from central cities to nearby suburbs, which, according to the U.S. Census Bureau, resulted in 3 million people leaving the cities, while the suburbs gained 2.8 million in one recent year.

Depending on circumstances, you may have other financial issues to consider. Large companies seeking to build semiconductor factories or auto plants, for instance, often land well-publicized tax concessions worth billions of dollars. Economic development consultant Sharon Ward, a former research and marketing director for the Committee for Economic Growth, a private organization that markets the Wilkes-Barre area of Pennsylvania to businesses, points out that small companies rarely receive such perks because incentives are based on the number of jobs the business will create. However, an entrepreneur may be able to tap a cash flow windfall by selling a building or land that has appreciated in value, then purchasing or renting lower-cost space.

An even more intangible issue is quality of life. Companies evaluating relocation often look at recreational opportunities, education facilities, crime rates, health care, climate and other factors when evaluating a city's quality of life. That's another reason deteriorating inner cities are losing businesses, as companies seek an improved quality of life elsewhere. "Maybe it's an unhealthy or unsafe area to live in," notes Ward. "Or it may be hard to recruit workers because of [the location]."

Relocation Results
While moving carries risks, a move can be one of the best things you ever do for your business. When you move or expand to a new location, the odds are stacked in your favor, according to relocation expert Luigi Salvaneschi, who has overseen the selection of new sites for thousands of retail establishments. "Because you have been in business for some time," he says, "you are fully aware of all the problems your current location has. If you have poor traffic and know that's the problem, you look for a new location that has good traffic."

But there are no guarantees in relocation, and as many things can go wrong with a move as can go right. Ward cites a study of readers of Area Development magazine that identified a number of common mistakes. They included rushing the decision, focusing too narrowly on a few costs, failing to use available economic development services, ignoring quality-of-life factors, missing important environmental or regulatory concerns, and, believe it or not, failing to plan for future expansion. These mistakes can be boiled down to hurrying too much and trying to do a move too cheaply.

Part of the problem is the complexity of these two issues. There's no set time for how long it should take to move, Ward says, and sometimes you don't have a choice. "I've worked with companies that made a decision in three or four months because they didn't have a choice," she says. Others might expend two or three years in the process, with no better results.

Unfamiliar factors complicate cost calculations, adds Salvaneschi. For instance, an entrepreneur must figure in the cost of business interruption. Almost inevitably, a business's productivity will be reduced for a period of days or even weeks after a move. And that's not all. "You may also have some loss of goodwill," he says. "Especially if you've been in that location for many years, you're going to lose some loyal customers."

Expanding Without Moving

Moving is one way to obtain room to expand, but it's not the only one. You may be able to expand by taking in adjoining space, increasing productivity of existing employees and facilities, or by splitting up your facilities in separate locations.

Absorbing adjoining space is probably the most convenient and inexpensive way to add room for more employees and equipment. You save on moving costs, interruption is minimal, and your old customers won't have trouble finding you because you will be in the same place. When you're picking your original location, in fact, it's not a bad idea to consider the availability of adjacent expansion room as one of your criteria. If space next to your current operation becomes vacant at a time when you are considering expanding, you may want to let the owner of the property know you may require more room soon. You may be able to take out an option on the space that will preserve your flexibility.

You may be able to grow your business without moving if you can increase the productivity of your current operation. You can generate more production without adding staff by training your employees to work more efficiently. You can also replace slower machines with faster models, or make alterations to existing equipment to increase output.

Another way to grow without moving your whole company is to split your operation into more than one location. A company that manufactures and sells from a single location can move its warehousing and manufacturing to another facility while leaving its sales outlet in the same place so customers won't have to find it in a new spot. Although the logistics of working from more than one location can be tricky, it's one way to have some of the benefits of moving without all the drawbacks.

Lease Options
One of the classic business decisions involves balancing the tradeoffs between buying real estate to quarter your business and renting or leasing the space. While each situation offers nuances to consider, the basic difference is that buying requires more upfront capital investment but provides security and the opportunity for capital appreciation. It costs less to get into leased space--and it's easier to get out, too--but monthly payments may be higher, and you may have to find a new place to do business when your lease is up.

One option open is to make a personal purchase of property and then lease it to your business. The business gets to deduct the lease payment, while you receive added income.

If you don't want to take on a long-term mortgage to buy office space, consider a lease with an option to own. Terms of this arrangement will allow you to buy the property for a preset sum at the end of the lease. You will be able to lock in a price now and save the expenses of having to move someplace new when you're ready to buy.

Making the Move
Although deciding to move is tough, it's nothing compared to actually making the move. That starts with writing detailed specifications about what your new location must offer. If your main reason for moving is to tap a better labor market, don't get distracted by a favorable lease offered by a prospective landlord or incentives dangled before you by an economic development agency. "You would not want to move to find a well-qualified work force only to find that it's worse in your new location," says Ward.

You'll also need accurate and complete information about the new location before you can commit to moving there. Reference publications such as The Statistical Abstract of the United States and magazines such as American Demographics are good places to start. You can also subscribe for a month or two to newspapers in the cities you're considering (or read them online) to get a general feel for local circumstances.

Be specific when gathering information from Chambers of Commerce, utility companies, economic development agencies, real estate brokers, employment agencies, other small-business owners, and so on. Don't ask general questions like "Is there a good supply of affordable office buildings?" Instead, ask "How many 10,000-square-foot blocks of vacant Class-A downtown office space exist, and what are the going terms and prices?"

You should also visit all sites on the short list of your targets. "I have a saying: You walk it; you drive it; you fly it," says relocation expert Salvaneschi. Only by walking and driving around a location from various angles can you get a feel for traffic patterns. Aerial views from small planes or helicopters can help you grasp the dynamics of a particular retail zone, he adds.

Making the move itself is another challenge in making the relocation work. It's important to decide what equipment, fixtures, records and other items to actually move. It might be better to dispose of inventory at fire-sale prices rather than pay to haul it across the country.

Once you have decided where, when, what and who you'll move, assign someone to be in charge of the relocation. He or she will be very busy with tasks from soliciting bids from movers to keeping employees informed about the plans.

In business, as in your personal life, not every move works out. But by looking closely at their reasons for moving and making sure the chosen spot addresses their needs, entrepreneurs increase the odds that the grass really will be greener and that what appears to be a better city for their business will turn out to be the best.