Solomon Bruce Consulting Blog

Saturday, August 21, 2010

We think that we need to move! Does that make sense?

  In the past several weeks, we have had several clients discuss moving their present location to another location.  Some of the moves are local, some out of town, state, region, etc.  Interestingly, there is always a whole host of questions that consultants want to know before providing counsel on the wisdom of the move.
   Some of the reasons for moving are simple-- the client has out grown their old location and needs more space.  The rent has gone up and the sales have gone down.  Everybody else is doing it, we don't want to be left out.  Everybody is moving to the other side of town, we need to have a presence there as well.
   All of these reasons sound rational and logical, however, from a business standpoint, the business owner should be looking hard at the data before making any decision about moving.  The data that I refer here to is sales data, expense data, new facility build out expense, car traffic count if your business depends on drive in traffic.  Now, this does not sound like a lot of fun, however, from a pure financial perspective, this is the only way in which to view the cost effectiveness of a move.
   I know one business that rented space in an industrial zone of a large city for many years.  The building was not fancy, nor were the offices or showroom.  This was an industrial manufacturer which did not need anything fancy.  I am sure that they had paid for the building several times over during the course of their many years in that location.  The business had done quite well and in 2007, the firm elected to build new facilities a couple of blocks away.  The new facilities were able to adequately house the larger machines, create very pleasant office spaces and present a very professional appearance to their customers.  Sadly, the crash of 2008 came and although the firm went ahead with the new offices, the decrease in business has really caused a stretch in cash flow and rent payment.  Good management allowed the firm to remain in their location, however, it has been much more difficult financially than when in the old location.  Of course, no one could predict what might happen in the future!
   Another business I am aware of was located in the downtown corridor of a city.  The business catered to a niche market and had excellent products for the particular niche in which they worked.  This business owner elected to move to a suburban location several miles from the downtown business corridor in direct competition with several large box stores.  The increased amount of hours to remain open, more expense owning their stand alone building as well as greater staff requirements has been much greater than initially imagined.  The fact that competition from many large box stores required that the store be open on Sunday, something that was not required or necessary when being in the heart of the downtown corridor.
   If you are thinking about moving or changing locations, careful thought must be considered before you take any action.  The data needs to be carefully examined and extensive sensitivity analysis should be completed before you undertake a move decision.  The costs of moving, being closed, re-establishing the new business should all be factored in before making a move decision.  Often times, the hidden costs not considered will negate any immediate move benefits.


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