The expansion option

It was a decision TJ Hale owner Bob Rosean thought about for years: how to handle his business’s growing space needs. Should he expand his current Menomonee Falls facility, construct a new building or continue leasing space in Milwaukee?

The decision-making process was challenging at times as Rosean gathered information and considered the trade-offs involved with his options. Initially, Rosean leaned heavily toward building new – he even purchased land – but after careful consideration, he decided expanding his current building was the best move for his company.

Rosean’s situation is not unique. When business owners come to me to discuss expansion, we analyze the options, understanding every consideration to help them in the complex decision-making process. Rosean’s story is an excellent case study on exploring whether building an addition is the right choice for your business.

Assessing the options

When TJ Hale needed additional space for its growing business, Rosean considered all the options available, including maintaining the status quo. He took his time to carefully look at building new, expanding, leasing space or doing nothing.

“Everyone has different levels of risk tolerance,” he said. “Business owners are often up half the night thinking about some part of the business, including how much space you have or need. The confidence to expand starts with how you view your business and the staff around you.”

Rosean carefully studied the trade-offs of each option. “I did the financial analysis and put myself in the mindset of the different decisions. For example, if we did nothing, how would we cope with growing business – do we lease more space? Outsource? I ran through all the scenarios,” he said.

Don’t forget to consider how the company might cope if business conditions change. While Rosean was talking with a builder about new construction, orders from a key customer slowed. Rosean said the situation was a financial reality check, making him consider more fully the implications of building a new facility. (The customer’s orders have since picked back up and even increased.)

Key decision factors

Three key factors played an integral role in Rosean’s decision to expand TJ Hale’s current facility: understanding how a move would affect his employees; how relationships with customers would be impacted; and the feedback of smart advisers.

Rosean discussed with his employees the challenges and choices facing the business. When he brought up moving to a new location, Rosean was surprised at the feedback: Many employees were worried about a longer commute time. While they didn’t say it, he worried some employees would eventually look for jobs closer to home. “Good employees are vital to business success,” he said.

Moving to a new facility would also disrupt TJ Hale’s ability to meet customers’ demands, as equipment would need to be taken down, moved and reassembled. “Building an expansion in Menomonee Falls and migrating operations from our other space in Milwaukee would not be a major disruption,” Rosean said.

Rosean also reached out to several advisers and consultants to get their input. An operations specialist, for example, completed a thorough analysis of the existing location and how employees worked. He came back with a plan that showed how changing some work shifts and moving equipment – along with an addition – would help the company meet its space requirements. “When he finished, we realized we could reconfigure and expand here,” Rosean said.

Lessons learned

Rosean acknowledges that business owners are not experts on expansions – they are experts on running their business – and it is vital to seek outside counsel. By going through his own decision-making process, Rosean came away with a couple of lessons to pass on to other owners.

“Communication is so important, especially with your employees, but be careful not to announce anything too early,” he said. “I told one client we were going to move to a new location and they were excited. I then had to walk that back when we decided instead to expand our current facility.”

Rosean also learned the value of the intangibles, including his employees’ reaction and what the business might look like in 10 years. “Do not just weigh the financials,” he said.

There’s a lot that goes into making the decision to expand your business. An ideal place to start is to research your possibilities and consult with trusted advisers. Take your time and consider all your options. Sign up for this series as we continue to cover this topic.