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)
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3. High operating costs: For many companies, labor costs are the largest expense. Finding a location with qualified labor, lower payroll taxes, and lower unemployment insurance rates can help a company to realize substantial savings. However, cheap labor should not be the driving force behind a move.
Many U.S. companies are currently moving production back from China and Mexico. Despite lower offshore labor costs, these companies realized that the overall operating costs of doing business offshore were not lower. It is important to evaluate how a move will impact all operating expenses - not just labor costs. In addition, finding the ideal community will not only create a more profitable operating model, but can also fund some of the ongoing operating expenses through cash incentives and grants.
4. Proximity to customers: When gas prices spiked last year, companies scrambled to set up regional distribution centers because the cost to ship products across the United States was so great. If a business is serving a customer base located halfway across the country, it may make sense to move a portion of its operations in order to cut shipping and transportation costs.
5. Taxes, taxes, taxes: Unfortunately, the United States is the second-highest-taxed country for business; however, tax structures vary dramatically from state to state. By moving a company or expanding in a new location, a business can save a substantial amount by considering an area that provides lower taxes, tax breaks, and incentives to businesses. While taxes vary by state, a business that analyzes its tax burden at its current location and compares it to that of businesses in other states can discover the potential for dramatic savings.
Making a Match
Once a company decides that relocating is a consideration, it should start by taking a look at which areas are business-friendly and provide the best-case tax scenario. Next begins a process to determine how those locations match up with the specific needs of the business. The key steps to finding the right place to grow a business and improve profitability are as follows:
• Evaluate operating costs. Since the decision to move or not to move should be a financial one, the first step is to take stock of the company's operating budget in order to compare key costs at the present location against the cost structures of other areas.
• Assess labor needs. An analysis can be done to determine if a company's desired employee skills are available in another community, or if there is an abundant labor pool or the resources available to train potential employees.
• Look before you leap. Those charged with the task of site selection should profile a number of communities that are a good match for the business based on geographic preferences, labor demographics, and infrastructure needs. They can also help to determine the areas that provide the best economic incentives for growing a business.
• Make a site visit. A decision cannot be made based on how a community looks on paper. Company representatives should visit the prospective areas and ask to meet with local officials to talk about how they may help to meet the needs of the company and to determine whether or not they would be good partners for long-term growth.
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