How to Improve Profitability Through Business Relocation
Even in today's economy, companies can survive and thrive if they know where to locate their business.
Dana Olson, President and CEO, Ecodev (June/July 10)
The recession may be slowing but many businesses continue to feel the effects of the poor economy. With looming tax increases and uncertainty as to when things will get better, many companies are scaling back operations and looking for ways to lower costs. Employee layoffs or plant closures are becoming commonplace, but these drastic measures can be avoided if a company is willing to consider moving production or a portion of operations to a community that may be a better match for the business and, ultimately, help to improve profitability.
Relocation can lower operating costs by 20 to 30 percent. How? By helping a company to optimize its financial, labor, and productivity investment. Ideally, the new location would also offer lower property costs, a lower tax structure, as well as cash grants and incentives for growing businesses. The right community can help even a struggling company turn around its situation and better position itself for growth.
Some companies may be hesitant to consider a move; however, relocation doesn't mean having to uproot an entire company from its current location. In fact, many companies choose to keep their corporate headquarters in the current location but move production to another location. Executives and personnel often prefer this and, since production is usually the largest expense and easiest portion of the business to move, it makes good business sense.
Too many business owners start their companies in the town where they live for convenience but don't factor in how the business could be more profitable in another part of the country. For example, a manufacturer based in Minnesota for more than 80 years finally had it with the increasing taxes in its state. When the company looked at how it could improve its situation, it found it could shave 25 percent off of its operating costs by making a move to another state.
Another manufacturer located in the Midwest for two generations was facing layoffs because of the economy. It was able to turn its situation around by moving production to a different state, which helped the company to cut operating costs by 30 percent and secure $1 million in operating cash to fund the move and ongoing operating expenses. Instead of laying off employees or taking other drastic measures to cut costs, both companies were able to persevere through tough economic times by making a move and now are poised for growth.
The key to identifying the ideal location that will improve profitability is an analysis of the business's operating model and comparison with key costs in different areas of the country. Some states - such as Florida or Texas - are known to be more pro-business for their relatively low business costs. But that doesn't mean these states are right for every business.
Consider a company that needs to ship product to its customer base in the Northeast. Locating in Florida or Texas doesn't make sense if the firm incurs exorbitant shipping and transportation costs. Companies need to examine several factors, from infrastructure requirements to the need for qualified and affordable labor - all while determining each factor's impact on the operating budget - in order to ensure they don't make a move for the wrong reasons.
Five Telltale Signs
When should a company consider relocating? Here are five signs to look for:
1. Facility upgrade or consolidation: Businesses in the midst of expansion should look beyond their backyard. When a leading medical device company, Cardiovascular Systems Inc. (CSI), needed a new manufacturing facility to support the production of a new product, it found the best location to meet its expansion needs in another state. Through an extensive search process, the company learned it would be best served in a community outside its home state that offered both a qualified labor pool and an attractive economic incentives package. This allowed CSI to build an expanded facility without taking on additional expenses or debt.
Consolidating multiple sites into one location can also help to save a company money and streamline operations. In the case of Apogee Retail, a nonprofit call center, consolidation also helped to save jobs. The company sought to consolidate three call centers into one operation to maximize efficiencies and reduce costs. By finding the ideal community that provided an abundant qualified labor pool and economic incentives, Apogee was able to meet its objective of not having to downsize or eliminate any jobs.
2. Hiring and retention: Work force issues can often be overcome by relocating to a community that better matches a company's specific labor needs. For instance, when a leading medical transcription company was having difficulty hiring and maintaining its employee base, it located a training center near a community college and developed a partnership with the college to train and recruit transcriptionists.
In another example, a manufacturing company that struggled to find skilled sheet metal operators was able to relocate to a community that had recently had a couple of significant plant closures, and, therefore had a ready-to-go work force.
What are red flags companies that are scouting for new locations should beware of?
Companies should note if the community is growing or shrinking. Are businesses moving out or is there revitalization underway? More
- Dana Olson, President and CEO, Ecodev