What to Consider When Making a Real Estate Move

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Small business expansion is not an idea often explored until startups hit an inflection point in their business, usually tied to a growth event such as a new financing round or explosive market traction. Based on the business plan developed during such an event, a company needs to consider many moving parts: what markets or verticals warrant expansion, how to tie employee headcount to growth goals, how product development will inform staffing and so on. Each part will inevitably inform any upcoming real estate strategy. Depending on the situation, that might mean more space in the current location, moving the business to a new location or expanding into new cities.

The pandemic has altered commercial real estate strategy for the foreseeable future, presenting an opportunity to set up regional hubs or satellite locations to accommodate small business expansion. Because jobs are no longer always tied to a physical location, getting a real estate strategy right has become more complex than ever. What has not changed is that founders must consider a combination of employee and customer experience when expanding a business to a second location.

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If the space is strictly for staff, consider how many employees will actually use the space. Hybrid work models may mean fewer people in the office at any given time. If that’s the case, perhaps the intended use of the space should be geared toward collaboration rather than individual work. Dedicated desk space may be an unnecessary consideration in many cases. Other traditional factors such as building or area amenities, proximity to talent and access to public transportation also weigh into a space selection. Startups should also consider the quality of their landlord or flex space provider, and what their philosophy is on tenant engagement.

If the second location is a “non-people” space, then the qualities of the space under consideration may change. If a company is making, storing and shipping physical goods, then the configuration and location of the manufacturing or warehouse space are paramount. If a company is setting up micro-distribution centers or ghost kitchens, for example, then proximity to customers and mode of transportation are top qualities to consider.

Opening a second location small business best practices

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With strong, accurate forecasting, you can begin to explore the idea of moving business to new locations. But the key to this process is the continual evaluation of your space strategy. Here’s a quick breakdown of how it should play out:

Establish company headcount projections.

Headcount projections will naturally change with time and will require regular review and revision based on the market and the business itself. It’s essential to create a systemized process, repeatable for future use. Start with some scenario planning and forecasting, establishing predictions around sales projections and business challenges (i.e., competition, regulations, technology, etc.).

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Keeping these likelihoods in mind, layer in a data component by selecting a set of workforce metrics. Attrition rates, retirement eligibility and departmental hierarchy are some of the most common, but other possible workforce metrics include data points like position requirements, staff skill sets, certifications, performance ratings and payroll information. Each of these can provide greater insight into company headcount projections.

Now, take a step back and evaluate your current workforce against both your predictions and your metrics. Doing so can highlight any gaps in succession-eligible employees, pay discrepancies that’ll prevent you from filling key roles, the efficacy of certain positions or simply career developmental shortfalls. You may even uncover indicators that top-performing employees will likely be seeking job opportunities elsewhere.

All this information can provide you with a better idea of future labor needs when expanding business to a second location. It’s also the information necessary to understand future job requirements and ensure you’re able to set realistic salary expectations.

Idea Grove, a Dallas-based technology marketing agency, goes through a similar process regularly. Its chief operating officer, John Lacy, feels company headcount projections are one of the more effective means of getting the right number of the right people with the right skills to service its clients.

Align space growth with your budget.

Budgeting for business expansion can be a challenge for many startups, as they don’t often have the capital to burn on additional rent, tenant improvements, and so on. You need to ensure the space fits employee and business needs while not breaking the bank in the process. Before planning a small business expansion, revisit your overall budget and be realistic about what you can afford.

Moving your business to a new location might seem ideal, but it must first be affordable and sustainable. Perhaps another nearby location can offer similar — if not the same — advantages. Take a lesson from Crumbs, a New York-based bakery chain. The company made the mistake of basing its small business expansion efforts around the cupcake trend. With little else supporting the business, once that trend passed, the company ended up closing all its locations.

Engage the market for available spaces in desired locations.

After you’ve determined company headcount projections, space requirements and a realistic budget, you can confidently start looking at new locations. Approach the process by doing some market analysis to ensure your plans realistically align with market conditions. All market motions should be informed by either your headcount projections or your proximity to customers.

Although it’s important to conduct your own market analysis, you might still need additional support in the form of a tenant representation broker. Based on your requirements and budget, brokers can ease the time commitment needed for you to thoroughly understand market dynamics and space availabilities to fit your small business expansion needs. More important, brokers have intimate knowledge of landlords and off-market opportunities such as subleases or shadow vacancy, and they are experts in deal negotiations, so they can prevent you from making decisions that could burden your company with unnecessary risk and cost.

For small businesses, real estate strategy requires accurate forecasting and continuous evaluation of how to best serve both your employees and customers. Before you open a second location, try these strategies for aligning your space with your budget and business goals.

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