- Richard M Gatto
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The Whys and Wherefores of Relocating Your Business
Moving is always stressful. In fact, on a one-to-ten scale, moving ranks with breaking up or getting a divorce.
And moving a business is even more difficult than moving to a new home. Yet relocating can be the best answer to some of the challenges your business is facing and a real boost to its future growth. Here are some of the advantages it can offer.
It can increase your customer base and access to supplies.
If your current customer base is shrinking because of changing demographics, and walk-in traffic has shrunk as a result, a move to a better location may provide a significant boost to your bottom line. So, too can moving to another area that’s becoming popular with the clientele you’d like to reach. Or if your present location is an inconvenient distance from the suppliers you need, relocating might make doing business more efficient and profitable.
Relocation can also lower your costs.
Businesses that were first established in transitional neighborhoods may find that once gentrification is completed, they can no longer afford the rent for their first location. Or perhaps the cost of utilities has skyrocketed in the area. And then there are taxes! Another location may offer tax breaks and other incentives to spur growth that your business can profit from.
It can provide greater access to a larger talent pool.
Good help has always been hard to find, but there’s more of a shortage of good employees today than ever before. Even before Covid-19 started, long commutes were a drawback when trying to recruit young people. Millennials, in particular, regard long commutes as a negative. And even though many jobs can be done off-site, working for a company that’s close to home, or in an attractive location in town, is still regarded as a plus by top-tier candidates.
It can let you upgrade your facilities, space or quality of life.
Perhaps your current location is in a building in need of major repairs. Or your business needs more space for new equipment and more staff. Or construction and demolition around the building is making it hard to attract walk-in traffic, and even hard for your staff to concentrate.
Relocation could be the best solution to all of these situations. Just make sure you look ahead to what the future may bring. How good is the maintenance in the new location? Talk to the current tenants to find out. Check the public restrooms, elevators, stairwells, and hallways. How do they look and smell? Working in a building with bad plumbing is NOT something you want to do to your employees, your clients, or yourself. Keep in mind if you’re moving for more space, you may need still more space a year or two from now. Can the new location accommodate that? If not, you may find yourself having to relocate all over again.
Also research future plans not only for the building or campus you’re moving to, but the community at large. Are there plans for major construction that would impact traffic, public transportation, and taxes? If you’re moving to a high rise with a great view, how likely is it that another high rise will be built that blocks those views as the community grows? The more information you have, the better prepared you’ll be to make the very important decision of where to go.
Should You Lease or Buy?
Another important decision is whether you should lease the space or buy it outright. Here are some of the pros and cons to consider.
THE PROS OF LEASING
Flexibility – If you’re moving to a new area and want as much choice as possible when it comes to location, size, and building type, then leasing makes sense. For one thing, you don’t need as much money upfront and may be able to qualify to lease a space you couldn’t afford to buy. And if things don’t work out, you won’t have the hassle of selling if you want to move on.
More liquidity – Leasing also lets you keep your cash as liquid as possible since the upfront costs are far lower when renting versus buying. Of course, there are some costs you will still be responsible for including upfront fees for an attorney, broker, pre-lease inspection, and security deposit.
Less hassle – After all, all maintenance and upkeep are the landlord’s responsibility.
Tax breaks – You can not only deduct the lease payment, you can also deduct your property insurance, property taxes (depending on the lease type), utilities, and any maintenance costs or fees you incur.
THE CONS OF LEASING
No equity or appreciation – Just like when you rent an apartment instead of owning a house, there is no equity or appreciation.
You can’t rent out space you’re not using – You may not need all the space you’re renting, but since you don’t own the property, you can’t collect rent from others.
A rental fee is usually higher than a mortgage – The typical lease agreement usually demands that tenants pay for renter’s insurance, property taxes, and utilities in addition to the rent. Altogether this may make your rent payment higher than a mortgage payment.
No control over the property – Finally, renters aren’t owners. They have to adhere to the restrictions of the landlord as described in the lease. When the lease expires you have no control over how high it might go. You also don’t have a say over who your fellow tenants are. If their business is competing with your own or their behavior scares away your customers, you have no control over the situation. And if your business should be unfortunate enough to fail before the lease is up, you’ll still be liable for the rent.
THE PROS OF BUYING
Building equity – If you’re able to buy the property outright you’ll have no monthly mortgage payment. Even if you take out a loan to make the purchase, it will still probably be less than a rent payment, plus you’ll be building equity. Should you relocate, you can probably realize a profit from the sale, which in turn, you can reinvest in your business.
Appreciating asset – As a commercial real estate owner you can benefit from capital appreciation as your property’s value increases over the years.
Rental income – Many businesses use only about 51% of their property for their own needs. So, if you have additional space, renting it out to a tenant or another business can provide a profitable secondary income stream. For example, you may use the first floor of a three story building for your own shop and rent out the other two floors as offices or even residential apartments.
Tax breaks – You can get a significant tax break on a commercial property by deducting the interest on your mortgage and depreciation.
Control – As the property owner as well as the boss, you make all the rules. You never have to worry about a lease ending, an increase in rent, or the behavior of tenants you might not be happy with.
THE CONS OF BUYING
Upfront spending – To buy a commercial property you typically have to make a down payment of 10% to 40% of the property’s value. Plus, there are also closing costs and other fees that can add up to quite a bit. Then you may need to renovate the property and incur other costs before actually being able to open for business.
Difficulty qualifying for financing – Commercial loans with a low interest rate can be hard to come by. If you find yourself unable to qualify for a rate of 4% or less, it may make more sense for you to lease until you have more cash in hand.
Prepayment penalties – Another thing to consider is that many commercial real estate loans come with expensive fees if you want to prepay the balance.
Liabilities – Being in full control of a property means you’re also fully responsible should anything go wrong. If someone is hurt in or around the building, you’ll be the one who can get sued. This means that property insurance isn’t an option – it’s an absolute necessity. And if you rent out sections of the property, you’ll need additional insurance to cover any liabilities you might have in those areas as well. What’s more, your lender may require a personal guarantee before they’ll grant the loan to your business, which would make you personally liable to repay the loan if your business can’t.
Loss of liquidity or capital – Finally, if you tie up too much of your cash in the property itself, you may not have enough capital should the value of the property decline. To recoup your losses, you may have to sell or do a partial cash-out refinance. Even worse, tying up your capital may mean you can’t invest it in profitable opportunities that might come along.
Seven Things to Check Out Before Making a Decision
Once you’ve made up your mind about relocating, and you start looking at properties in your preferred neighborhoods, here’s a checklist to keep in mind before you make an offer:
- Square Footage – It should be like the little bear’s porridge: “just right” for your purposes. Neither too big nor too small, and with the layout you need to accommodate your staff, customers, and equipment.
- Accessibility – Will your customers and employees find the commute to your new location short and easy? Is there street traffic? How close is it to airports, train stations, and other public transportation? How about the distance between you and your suppliers? Will changing to a new location add or subtract time and miles to your deliveries?
- Storage – Is there enough room to store inventory and extra supplies? Good storage lets you buy in bulk for extra savings. And if you have to rent off-site storage lockers, that will be an additional expense.
- Parking – Will your employees and customers have to park on the street or blocks away from your place? Is there covered parking available? If so, at what cost? Offering free parking to customers is a major convenience that they’ll remember. It’s also a valuable perk for employees.
- Renovation Costs – If you’re buying the property, consider how much you’ll have to spend on renovation. Even if you’re leasing, you’ll still want to decorate your space to suit your needs. The more you have to do, the more you’ll have to spend.
- Utilities Including Internet Capabilities – Location not only determines the cost of gas, electric, phone, and the internet but may also impact access. Make sure all of these will be available at a reasonable cost.
- Future Growth – Are there options to expand the space as your business grows? Perhaps there are other offices adjacent to yours that you could take over. Or a parking lot in back you can eventually build on. Try to consider what kind of space would best accommodate growth.
Announce Your Move to Your Employees First
This is especially important if you want to keep most of them with you. Your company represents their livelihood, too, and they may need to find different transportation to the job once you move. They may even need to find a new job altogether if the change is too difficult for them to manage. If this is the case, be as considerate, understanding, and helpful as possible. Remember, those who stay with you will regard your behavior towards their fellow employees as an example of how you may treat them.
Make the announcement as soon as you’re sure of your plans and do it as a celebration. After all, the reason for the move, whatever it may be, is to support business growth. Tell them as a group, perhaps at a lunch or breakfast meeting, why you’ve made the decision to move and how the new location answers the company’s needs. Also include details about commutes, changes in routines, where they can eat lunch and relax, etc.
Ask for suggestions they may want to make such as a microwave in the lunch room or perks they would appreciate like a management-sponsored breakfast on Fridays. Make them feel like they’re part of the process and that moving represents a positive change for them as well as the company.
Give them a packet of information they can keep for reference including:
- The address of the new office and suggested routes to get there
- New phone numbers and email addresses if appropriate
- A time line for the move
- What they’ll be expected to do, and when, to facilitate the move including cleaning out their old office and setting up at the new location
- A list of local amenities at the new location – restaurants, coffee shops, dry cleaners, drug stores and supermarkets to help them get oriented to life in a new place
- A thank you card for their help – maybe including a gift card to a Starbucks or a local shop at the new location
Make Sure Your Clients and Customers Know How to Find You
Tell them the good news in terms of being able to serve them better. Assure them that they’ll enjoy the same service you offered before and even more – such as a more attractive space, more parking, more product choice, etc. Stage a “Grand Opening” once everything is in place and send them formal invitations to the event at least a month before. Include directions, new phone numbers, email addresses and hours of operation in the invitation.
Use this as an opportunity to strengthen the relationship you have with your best clients. Call or email them personally to tell them about the move. Offer them a special, limited-time only discount or gift when they come to the new Grand Opening and present a VIP card you can tuck into their mailed invitation.
Don’t Forget to Alert Your Vendors and Suppliers
Make sure they know that you still want to do business with them and that you look forward to seeing them again at your new location. Provide them with all the information they need to find you and contact you about new products, services, etc.
Spread the Word in Every Way You Can
Announce the move as soon as you can – at least three months in advance – so people have time to get used to the idea. Put signs inside and outside your store about the relocation. Post it on your website, social media and send an announcement to the local papers in old location and the new one about when you’ll close down and reopen. Hold the “Grand Opening” as an open house for your old customers and your new neighbors. Invite local business leaders, bankers, politicians as well as special customers, vendors and the press to attend on that day. Keep the announcements of the move up for three more months to make sure everyone interested has time to read about it.
Do a Blog on the Move and Post It on Your Site, Facebook and LinkedIn?
Tell people where you’re moving to and how this will benefit your business and your customers.
Hope this helps you if you’re considering relocating. The best of luck with your move.