What It's Worth

There are two ways to look at cost of living: from your viewpoint as a business owner or from the perspective of your employees. If you are relocating or expanding your operation, you need to take both into consideration.
3 min read

This story appears in the March 2008 issue of Entrepreneur. Subscribe »

For business owners, an area's cost of living can have an enormous impact on issues such as salary expenses, available work force, transportation costs and the general operating costs of doing business. But that doesn't mean that you should automatically look for the place that has the lowest cost of living when deciding where to move your business next.

"Focus on the appropriate context for considering the cost of living in relation to your overall business objective," advises Linda Tresslar, managing director of Grubb & Ellis Company's Strategic Consulting Group.

For instance, if your company is dependent on hiring workers with certain skill sets, you need to be sure the area you choose can provide the talent you need and will be attractive to them. Cost of living is an important element in that equation. Sometimes a lower cost of living can mean a higher standard of living for workers. For example, in an area that's more affordable, they may be able to have larger, nicer homes. But there will also be times when the opportunities for greater compensation and growth make an area with a higher cost of living appealing to both employees and companies. Regardless of the actual cost of living, Tresslar says, "You can lower your overall employment costs when you [are able to] attract and retain key employees." If cost of living is important to your workers, rank it high in your relocation decision process.

On the other hand, she adds, if you have a logistics-driven business, you are likely to be looking more at issues such as transportation costs and maximizing your speed to market because those are what make your business thrive-and cost of living therefore becomes less of an issue.

Entrepreneurs tend to base their relocation decisions on emotion and then look for logical reasons to justify what they want to do; cost of living can be one of those reasons, says Mark Gibson, senior manager in Ernst & Young's risk advisory services group. "There's usually a catalytic event that makes people move," he says. "It could be a life catalyst for the entrepreneur, or it could be a business catalyst, such as a wish to diversify or a lack of capacity in an existing facility."

While business moves are usually motivated by several factors, Gibson adds, "Cost of living is probably the number-one driver for why [companies take operations] offshore."

You can do some preliminary, free cost-of-living research yourself on websites such as money.cnn.com and salary.com. You can also contact the economic development agencies in specific areas. These organizations have plenty of data on the cost of living as well as other issues that you'll want to consider, and they'll provide it at no charge.

Jacquelyn Lynn (jacquelynlynn.com) is a business writer and author of The Entrepreneur's Almanac.

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