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Tuesday, November 27, 2012

Think Before You Move: When Relocating Your Operations, Seek Financial Advice

Manufacturers are increasingly involving senior financial executives and outside financial advisors in their site-selection and relocation plans. The reason? Executives realize that facility relocation and expansion must be as heavily scrutinized as other capital expenditures, such as IT and equipment investment

This trend can be attributed to economic instability, resulting in the quest for more closely monitored spending and financial management. Including financial executives and independent advisors earlier on in site selection and relocation may also be an indirect result of the Sarbanes-Oxley Act, which mandated more in-depth reporting of previously glossed over aspects of business operations — including real estate activities.

Expand Your Focus
When deciding whether to relocate or expand, manufacturers may consider only the most obvious aspects of their business operations. Focusing on finding or building facilities that fit production, supply chain and other strategic needs is important, but you’d be wise to consult with your financial advisors from the onset to identify the more nebulous implications of moving.

Factors such as the price and availability of labor, taxes and financial incentives associated with the new location can either benefit your bottom line — or wreak havoc on it.

Location, Location, Location   
Whether your company is downsizing, expanding or simply relocating a facility, identifying a list of potential locations that work logistically may seem like a task that can be completed without the intervention of a financial executive. After all, your operations and supply chain executives know the ins and outs of shipping, plant communications and other logistical issues better than most.

But even though plant operations executives may consider a site a good candidate because the facilities, equipment, infrastructure and geographical location are perfectly suited to their needs, they may not see hidden problems. The immediate focus may be on the direct costs of the move, but the enduring financial consequences may depend on things such as the wage structure, union activity and taxes, and workforce availability of an area.

Catch a (Tax) Break
Just as tax implications might increase the overall cost of a move, incentives offered by states and counties looking to lure businesses — typically in the form of tax breaks — can and should affect your choice of relocation.

A word of caution, however: Even though some incentive packages may be larger than others and present tempting offers, you must weigh them against any potential downsides associated with the same locations to be sure your company is making the right decision.

After a full assessment of the financial implications of the proposed move is complete, identify the most important aspects of your operations. For some manufacturers, for example, having access to a specific skilled workforce will be the ultimate deciding factor — even if tax incentives and other aspects of the locations aren’t as ideal. For other companies, some location-based incentives such as favorable tax and wage structures may be too good to pass up.

Make the Right Move
Every manufacturing company should take a comprehensive view of any relocation or expansion — with help from financial executives within the company and outside advisors. Using these resources can help your organization make the right decision on where to relocate and help preserve its financial well-being while doing so.


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