I was visiting with a colleague in the real estate profession the other day. He was telling me about visiting with some business owners that were very interested in moving to larger, bigger office and retail spaces. In each instance, the business owner was having good success at the current location. However, the owner was absolutely convinced that by moving to a bigger space, they could increase sales, increase profits and become more successful.
Our firm has worked with several business owners who believe the same thing. Hence, it must be true. In each instance where we have had clients who have these thoughts, we identify a plethora of challenges that must be addressed before moving to a different space makes good economic sense. If you do not have a robust set of policies and procedures in place now, moving will not solve that problem. In most instances, it only makes the problem worse. If cash flow is a problem now, moving only exacerbates that problem also. If staffing is a challenge now, moving only increases the problems of finding new staff.
I am familiar with several businesses that elected to move after having had great success in another location. Sadly, each business failed to carefully consider the many challenges they were faced with when they finally got into the new facility. Let me address some of those-there are many more, however, these I am intimately familiar with!
The rent increased significantly. Sometimes it was 1.3 to two times greater. Sales however did not increase correspondingly. Yes, sales did increase, however, not equal to the rent and associated overhead increase.
The business owner became responsible for plowing the parking lot of his new space. One individual I know thought that Montana winters were such that a good snow blower would be able to plow the parking lot. One good snow revealed that individuals who plow snow for a living are good friends to have. Especially when your parking lot is full of snow and the temperature is -12F.
Failing to do a careful space analysis has caused many businesses that moved to have too much space in the new location. Now, the store in the new space looks empty or vacant. New inventory, fixtures, display cases are bought and installed. More money is spent on inventory that was not available in the old location. Now, this is not all bad. Perhaps the new location was exactly the right place to add another product line, increase offerings of a current product line or enhance the business by increasing the scope of service/product offerings. In one instance, that I am familiar with, the business was a professional services firm that needed more office space. The firm added several new office suites, hired additional staff and began operations. Twenty months later, the economic conditions declined so significantly that the staff was discharged, the offices were left vacant-and they still had 38 months on their 60-month lease. This business owner told me that he wished that they could go back to their original location, however, the lease could not be broken, the old space had been rented and they were not in a position to sublet the extra space available.
Moving to a new location when you have a successful business has to be a very carefully thought out process. Rent, overhead, insurance, product/service offerings, increased furniture and fixtures, advertising, staffing, telecommunications requirements are all issues that really require analysis. In our opinion, we suggest that all of these questions be carefully considered and addressed well before you really think about changing locations. Rigorous analysis is necessary here to ascertain if indeed, business will increase and become more profitable just because you decided to move. Interestingly, the numbers always tell the story. It may not be the story that you want to hear, however, it is the story of what actually is happening. Failure to carefully consider the numbers usually results in significant operational challenges.
If you are successful in your current location, give real careful thought to the points I have addressed before you decide to undertake a move.
In some instances, a small space creates a "demand" that is very desirable. If a restaurant only has 20 chairs, the food is very, very good, and there is always a waiting line to be seated, stay put. Do not move. Moving to a space where you can handle 100 chairs would probably result in additional expense as well as not having a constant demand for service or product.
The bottom line-moving to a new location without careful analysis usually results in loss of profit, increased expenses and higher overhead and greater owner frustration.
Joe Michels, PhD, P.E., C.P.I., is principal of Solomon Bruce Consulting LLC. Contact him at (406) 672-6387 or at www.solomonbruce.com