Occupancy Costs, Should you Move your B2B Business?

For a B2B business, such as a manufacturing, distribution or service business, Occupancy Cost is the total periodic expense incurred for the right to occupy the physical real estate it occupies.  Occupancy Cost is commonly referred to as ‘Rent.’  Rent is more than just the base rent, it also includes all of the NNN/CAM charges that go along with it.  See our post on NNN/CAM charges for a greater explanation of these additional expenses.

Loaded Delivery Vehicle

However, there is more to the issue of Occupancy Cost than just rent.  For a business dependent on logistics, such as a distributor or wholesaler or a B2B or B2C service business such as electrical contractors, there is the cost of the vehicles and labor.  If the customers are located far away from the business, the vehicles are driving additional miles, the costs go up in labor hours and direct vehicle expenses (gasoline) and indirect expenses (maintenance, insurance etc.).  These additional costs adversely hit the bottom line.

Conversely, moving to a more expensive location that is much closer to the majority of the customers yields shorter delivery/service routes which lead to more productive and happier employees.  Even if the savings on the expenses associated with the vehicles and labor only  wash even with the increased rent, it still makes sense to make the move as the employees’ morale will go up from the increased productivity and less time wasted in transit.  Happy employees make for a better work environment all around, it helps in recruiting new employees, and helps the employees be evangelists of the business.

These are all immeasurably valuable factors in a running a business successfully and happily versus stressfully.  The other benefit of a move is that is does freshen up the work environment, as the office employees are taken out their static environment and have to use more conscious thought in their daily routine.  Take advantage of a move to implement new programs, and to brainstorm for other operational procedures that yield greater productivity.  All these things can lead to a much larger bottom line, which means better cash flow and a business that has a higher valuation.

Of course moving involves some downside, and that includes any business downtime you might experience between the moves, or paying double rent if you set up your new facility before leaving the old one.  Also, the build out of the new facility will have some associated costs.  A couple of ways around this is to find a landlord willing to make some or all of the necessary improvements, or also looking for second generation spaces that have improvements in place.

For More information on how Just Elementary, Inc, Commercial brokers can help you with business relocation, business valuation, and lease negotiations contact Client Care Manager Sonia Chhabra by email cs@justelementary.com or call (323) 213-9193