To Move…Or Not

J. Tol Broome Jr. -- Gifts & Decorative Accessories, 11/1/2000

Most small businesspeople consider a move at some point in the history of their businesses. And many follow through on that impulse. For some, a move is just the tonic they need to take the business to the next level of success. For others, it is a regrettable event. There is very little material out there to aid in the decision-making process, not to mention the moving process. When I set out to learn more about this topic, I found no books, magazine articles, or pamphlets about moving. What I seek to create here is a resource guide for small gift and decorative accessory business owners who are contemplating a relocation.

Why Relocate?

Small businesses move for any number of reasons, but most of their choices are motivated by one of four things:

• They outgrow the space they are in.

• They become dissatisfied with the quality of the space they are in.

• They want to save money.

• They want to be closer to their target customers.

If your reason for moving doesn't fall into one of these four categories, it probably isn't worth pursuing.

Target Market

One of the first things you should do when considering a move is to analyze your current customers. How old are they? Where do they live? How far do most customers drive to get to your shop? How much do they usually spend? What services are they most interested in?

Once you have got a good idea of who your customers are and where they live, ask yourself two questions: 1) Will I be better able to meet their needs in the new location? 2) Will I be better able to attract new customers if I move?

If the answer to the first question is "no," you'd better be sure that the new location will help you attract enough new customers to offset the ones you will lose. If the answer to question two is "no," you had better feel certain that your existing customers will buy more gifts and decorative accessories at the new location.

The Demographics

Once you have analyzed your current customer base, formalize the process with a comparative demographic analysis. The first place to check is your local chamber of commerce. Most chambers maintain demographic information not only for the area as a whole, but for various segments. In most cases, this information is provided by the U.S. Census Bureau. All you have to do is obtain the information for the census tracts closest to your existing business and to your proposed site. Check all census tracts within a five-mile radius. This research will reveal the typical makeup of the potential customers living in close proximity to your store and the new location you are considering.

Other sources of census data include your local library and your municipality office. Most cities have a business assistance department that assists in matters such as in-town moves and rezoning. Another valuable piece of information that you can probably obtain from the chamber of commerce, library, or local government office is traffic count data. Comparing the number of cars that pass your current store with the number that pass the potential new location can help you decide whether to move or not.

Sizing It Up

Whether or not you are considering a move due to the size of your current space, you must scrutinize the dimensions of the proposed space. You don't want to commit to too much space, because the cost might sap your cash flow. On the other hand, if your new space is too small, you might soon outgrow it. A good retail rule of thumb (provided that your sales are growing) is to rent 10 to 20 percent more square footage than you initially need. This should provide an adequate amount of space for future expansion.

Image is a key consideration for any small business. Ask yourself these questions:

• What is your image now?

• What would you like to change about that image?

• Would a move improve your image?

A move is an ideal time to alter your store's image. For example, you may decide to go with a fancier storefront in your new location, or you might be able to obtain a more visible location. If the socioeconomic area into which you are moving is significantly different from your current location, you might want to alter your pricing structure. A move is also a good time to change the name of your business, if you're not happy with the current one. Just be sure that the name change doesn't hide your store from your existing clientele.

What Will It Cost?

Don't let the costs of the move itself sneak up on you. There are several things that you should do in order to stay on top of things.

First, hire a moving company. You can't afford to close your store for a week-or even a few days-while you transport your store equipment and inventory, one load at a time, in your van.

Second, you will have to change the mailing address and possibly the telephone number on your stationery, business cards, bank account, Yellow Pages listing, brochures, and flyers. The aggregate cost of changing your address in all these places can be quite substantial.

Third, you will need to advertise your new location. It would be a mistake to move without doing some advertising. (One no-cost solution is to send a brief press release regarding your move to the business editor of your local newspaper.)

After you consider the costs of the move, you'll need to address the costs of the new location itself. You will probably need to buy additional inventory, furniture, and office supplies. Some remodeling may be required. You also may need to hire additional employees.

The key is to consider all the new costs you will incur before you make the move. Then, try to determine where the money to fund the move will come from. If you don't have it on hand, you will need to seek an outside source of funds, such as a bank loan.

Here are some suggestions that can help you save money over the course of a move:

• Buy used furniture.

• Negotiate to have your landlord pay all or part of the leasehold improvements.

• Negotiate with your landlord regarding the actual lease payments.

• Add new employees gradually.

• Check with suppliers to see if they will offer volume discounts on new inventory.

Projected Sales

The bottom line in any move is that you must generate enough sales to keep the doors open in the new location. You should analyze your projected sales, using the following steps.

First, create a budget containing your anticipated monthly costs for all of the expense areas of the store. You can use the current expense levels in your existing store to estimate what you might spend in your new location. For instance, if your current monthly utility bill is $100 and you are increasing your space by 20 percent, then you would project $120 a month for utilities in the new location.

Second, using a projected margin level on your gift inventory, figure out the sales level you'll need to cover these projected costs. If you are increasing your store size by 20 percent and it will take a 50 percent sales increase to cover costs, then you should seriously reconsider the move. However, if the sales projections look reasonable, then you will have some tangible assurance that you are making the right move.

When analyzing projected sales, be sure to consider any competitive changes that might occur in the new location. If you are moving from an area with no other gift stores in the vicinity to a location with another shop a half a mile away, it will obviously affect your ability to attract customers.

Finally, I want to reiterate a point discussed previously. Pay close attention to your core customers. If the relocation will take you substantially further away from them, then you should seriously consider an alternative location.or maybe just stay put.

J. Tol Broome Jr. is a credit risk manager at Centura Bank in Greensboro, North Carolina. He has been in banking for 16 years. His freelance writing credits include Start Your Own Business, an Entrepreneur Magazine publication.