Business tipsWe recently spoke with George Boyadjis, CPA, FHFMA, VP Corporate Solutions at Cresa Real Estate for this week's business tips. He shared 5 things businesses should consider before expanding their footprint or moving to new space.
Case study: A local manufacturer
...with about $75 million in annual sales, was revenue constrained. Every day that they lacked additional office and manufacturing space meant lost revenue because they were unable to accept new projects. Time was of the essence so they reached out to Cresa Real Estate to acquire an adjacent empty lot and construct a new building.
Anyone would agree this should have been a slam dunk for Cresa, but instead, Cresa recommended a strategic analysis of the business needs first. This crucial step took this business in an entirely different direction.
ONE: Company Vision and GoalsStep away from the day to day operations and reassess the company vision and goals. How much space will the business need, by when and for how long? Take a deep dive into needs/wants/wishes of the business. Focus on how the new space can best serve its needs. Start thinking about space needs in advance - up to one and a half to two years, in order to be in the best possible negotiating position.
TWO: Business Strategy and OutlookOnce your space needs are in focus, look at where the business is going. Will it expand or contract and what will the operational priorities be? Are there industry or market trends that will affect the business in two, five or ten years? Will you be able to further expand in the new space or lease some of the space out if the needs of the business change?
THREE: Current Employment Environment
If you are planning an expansion, do you need to hire more employees? If so what positions need to be filled and how many? Does the local labor market support that expansion? Can you find enough of the types of employees you need in the area you are looking to expand?
Assessing the manufacturing companies' current circumstances and future needs, Cresa concluded the company had tapped out of the local labor market, so a new building on the adjacent lot would have created an additional problem - how to fill it. The analysis revealed that the employees the company needed were unwilling to commute from across town, where, 35-40 miles away, there was untapped talent. So they provided several leasing options in that area the company could consider retrofitting for their expansion.
FOUR: How Real Estate Terms Affect ProfitabilityCalculating your return on investment can be helpful when deciding whether or not to purchase a building versus lease, but don’t forget to take into consideration operational needs and employee satisfaction, which can have a significant financial impact on the business and is far more difficult to measure. To calculate ROI on a purchase, you will need to look at the cost of money, how long you plan to own the property and the resale value as well as occupancy costs. When leasing, what are the short versus long term benefits? A short term lease will enable the company to pivot should there be an unforeseen change in demand, but a long term lease provides cost stability and savings.
FIVE: What can a consultant bring to the table?A commercial real estate consultant provides insight and addresses factors you may not know to even consider.
- Commuting - What are your employee commuting patterns?
- Customers - What is your proximity to customers?
- Design - How does the functionality of the space affect its design? Are you taking in to consideration space and functional needs for different cultures? What percent private office space is needed versus space for collaboration or flexible offices? How many people use the space daily or occasionally?
- Cost -What are your occupancy costs as a percentage of the bottom line and how much does that matter? Is your customer and employee experience more important for revenue growth and employee retention?
- Advocating and negotiating - A real estate provider could help negotiate economic incentives provided by your region's economic development commission. They can act as a buffer, working with building owners and landlords on your behalf. Based on your timing and needs they know the best approach.
The strategic analysis Cresa recommended transformed what initially made sense- acquire adjacent land and build new, to instead, leasing and re-configuring existing space across town resulting in cost savings, expediency and access to an untapped labor market.