Monday, 16 July 2018

Choosing where to put your business headquarters is a big decision that's not to be taken lightly.

Indeed, once settled, most businesses stay put for a long time. But change is inevitable. What happens when your business' success skyrockets and you are starting to outgrow your current office space? Or what happens when you realize the labor market can't match your employee needs? Or what if your business keeps shrinking and the property costs no longer make smart financial sense?

Maybe it's time to move or expand.

First, you need to look at whether a move is a financially smart or even feasible plan. Is an expansion or move already part of your budget? Will you need to finance the construction of a new site? Or do you anticipate saving enough money by moving to a more affordable space or area to more than cover the costs?

Once your company understands what it can afford, company leaders must decide whether to expand current operations or move to new location.

When weighing such an important decision, it helps to first pinpoint the reason for moving. Some of the most common ones are:

  • Reaching new labor and customer markets 
  • Upgrading or expanding facilities to match the company growth
  • Moving to a more practical and affordable location

Here are some considerations for each of those points.

Relocating for labor and market reasons

Lack of local talent is one of the top three reasons for corporate relocations, according to a recent survey by moving company Atlas World Group. (The other two were expansion efforts and company growth.) Nearly half, or 44 percent of survey respondents cited lack of local talent as a factor affecting relocation. This was true across industries.

"If there's not a skilled, diverse, and talented workforce, there's no reason to explore that location further," said Brad Parker, executive vice president and Phoenix and Northern Arizona chief executive for BBVA Compass.

While talent may a big reason for relocating, the move itself is also likely to affect staffing. Companies risk losing key employees during a move. Relocation packages and other moves can help, but some employees will still choose not to move. According to Atlas' survey, nearly two-thirds of employees declined relocation in 2016. Family issues tend to be the primary reason why employees choose not to move while spouse employment is the second biggest reason.

You'll need to weigh the perceived benefits with the certain disruption to staffing. If your company requires specialized employees with technical expertise, your options may be more limited as it's important to relocate to an area where it's easy to find such employees.

Expansion and upgraded facilities

Company growth may mean multiple expansions and moves to accommodate more employees, more business lines, manufacturing capabilities, or facilities. Here are some common considerations for expansion tied to growing pains

  1.  Are there financial incentives for building a new factory or location? While huge, multinational companies often get generous tax concessions to build a new factory or warehouse, smaller companies rarely get such treatment because incentives are based on the number of jobs the business will create. 
  2.   Would building an additional office make sense for your business? Opening another office is always an option, but companies should also consider office culture and communication when mulling such an option. Communication is often more efficient when centralized in one location, instead of scattered across two or more offices.
  3.   Are you looking to grow your market by expanding your territory? If the company's focus has shifted to the new market, it makes sense to increase your physical presence there. Moving the central office really cements the company's dedication to the new market, which can be either a pro or con depending on the market. Having a single office also creates certain economies of scale over opening another separate, regional office.

Both expansion and relocation are disruptive to employees, but expansion can be less so – especially if renovations are limited to certain areas while employees continue to work.

On the other hand, a complicated renovation could require employees to move to a temporary office space. The decision to stay and renovate or expand into a new location will depend on your company's unique circumstances.

Moving to cut costs

The end of a lease and a great deal on another nearby property is often reason enough for companies to relocate. After years at a single location, companies have a clearer understanding of what they need and want from their location – whether it's ease of transportation, more foot traffic, or a different layout.

Other times, it may make more sense to move or downsize in order to cut costs. Moving to a different state can sometimes help by eliminating inventory or personal income taxes. Even moving from one county to another can occasionally lower sales taxes.

"From an operating cost perspective, the key drivers are "red tape" - business climate, and economic development programs such as tax credits and incentives. Companies are looking for a minimalist approach to regulation, low taxes, and incentives to increase capital spending," said Parker.

Moving to a favorable location at a lower cost is ideal, but it's also vital to consider not only the cost of moving but additional expenses. For instance, operating costs could be higher. Would a move impact vendor and supplier relationships and costs? Also, how will a relocation impact your brand within the community and among employees? If it looks like you are abandoning an area or shifting your focus, it could backfire and cost you in the long run.

To round out your overall assessment, be sure to consider the costs for licenses, permits, fees and taxes based on current location compared to other locations.

Parker says he encourages company leaders considering a move to talk with their banker for guidance and assistance in a new market.

"We are connected to our communities, have local relationships and can make introductions to business leaders and public officials to help make the relocation easier and more efficient. We can also help analyze the costs to making a move, " he says.

Some banks will even put together a team to help with the analysis.

"With a relationship manager as the quarterback, that team can help with credit requests, legal advice, tenant representation, investment services and payment systems," he said.

Moving a headquarters is one of the most important decisions a company leader will make, but if executed carefully and thoughtfully it can be transformative for business.

The content provided is for informational purposes only. Neither BBVA Compass, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA Compass or any of its affiliates. All accounts and credit are subject to approval, including credit approval. BBVA Compass is a trade name of Compass Bank, a member of the BBVA Group. Compass Bank is a Member FDIC.