By Entrepreneur Staff


Relocation Definition:

The movement of a business from one region or location to another

Businesses commonly cite five main reasons for changing locations. 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. But just about all moves can be attributed to some combination of these issues.

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

Another reason to consider moving is when a company finds itself in outmoded or undersized facilities. Some businesses start in a small facility, such as the founder's garage, and then move to bigger quarters in the same city. Later, the business outgrows that location or begins to find fault with its facilities, services, utilities, infrastructure or other features. 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 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.

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.

While moving carries risks, a move can be one of the best things you ever do for your business. There are no guarantees in relocation, and as many things can go wrong with a move as can go right. Common mistakes include 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.

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, especially if you've been in that location for many years.

More from Operations

Capital Equipment

Equipment that you use to manufacture a product, provide a service or use to sell, store and deliver merchandise. This equipment has an extended life so that it is properly regarded as a fixed asset.

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The process of receiving, packaging and shipping orders for goods

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The process of bringing goods from one country for the purpose of reselling them in another country

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An expense item set up to express the diminishing life expectancy and value of any equipment (including vehicles). Depreciation is set up over a fixed period of time based on current tax regulation. Items fully depreciated are no longer carried as assets on the company books.

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