Small businesses with expansion plans can take a deep dive into the demographic and market information they need by choosing professionals with different types of expertise to guide them to successful growth.
It’s against a bigger backdrop: Competing against larger players for talent and finding the right business location takes creativity. Striking a work-life balance and competitive compensation package that draws talent, while finding a location that won’t discourage your employees or customers, takes information. Lenders will want to know that your expansion isn’t just creating more volume, but is making the company more profitable. Additionally, hiring real estate, recruiting and finance professionals is a smart way to gain access to information that will lead to informed decisions.
With unemployment at 3.5%, finding the labor pool with the skill levels you are looking for can be difficult. That’s especially true in high-tech and IT sectors, where unemployment is below 2% for many positions. So, finding talent is a good place for small businesses to begin their expansion planning.
“They are battling with bigger firms for top talent,” says Ryan Gatto, district president of Robert Half International whose Saddle Brook office recruits accounting and IT-related employees for companies in northern New Jersey, Westchester and all of Connecticut. “We have a salary guide so companies can identify packages that appeal to job candidates in different markets. But it takes out-of-the box ideas; everything from consolidated work weeks, where employees can work four 10-hour days, to remote access and flexibility to work from home for employees who demonstrate they can work independently. People across the entire workforce are looking for work-life balance.”
Coming up with the right compensation package remains the biggest challenge in recruitment because most smaller businesses just don’t have the resources to offer salaries that are competitive with their larger rivals. However, when small firms work with recruitment and real estate companies that have the tools and access for providing good market intelligence, they can make informed creative decisions that may help attract talent.
“We know local unemployment rates, and understanding the local market helps us find ways to create a solid culture that creates retention and attracts top talent,” Gatto says. Flexibility is a key to finding talented employees, especially in the tech fields where Gatto recruits. Small companies seeking employees with those skills may have to consider moving to find them.
“We’re a global organization, we have so many offices locally across the country and the globe,” Gatto says. “We have a presence in those markets that lets us understand the nuances of the clientele and what it is going to take to attract top talent at a local level.”
While most small companies have a pretty good idea of where they want to expand, real estate brokerage professionals usually advise exploring alternative markets that come close to their targets for location and other factors important to their growth.
“We first identify their needs and then the first step is usually to conduct a commutation analysis for their employees,” says Conor Dolan, senior associate at CBRE in Saddle Brook.
“We can gauge what the impact of moving to a specific market or building will be. CBRE has a tool that considers not only drive time, but other factors like gas and tolls as well,” he says. The company also has a program for creating 3D images of space and how it could be designed, so clients can see whether it would fit out to meet their needs.
CBRE’s labor analytics group puts together demographic studies and does heat-mapping that shows density
of the population a client is looking for based on factors such as college and post-graduate education and income levels. It shows density of that population on a map. In New Jersey, Dolan says tools such as heat-mapping are more often used in metropolitan areas such as Jersey City and Morristown.
“For smaller firms, and firms of all sizes really, cost is usually at the top of the list,” Dolan says. “Real estate is typically the second highest cost to a business next to payroll, so, it weighs heavily in the decision-making process.”
Employee satisfaction is important.
“Other challenges that we see today have a lot to do with employee satisfaction in order to retain and attract talent in such a tight job market,” Dolan says. “Small companies will look to take advantage of economies of scale created by larger tenants in a building. They will try to find a place that offers multiple amenities – food services, exercise facilities, coffee bars” – because of the large tenants in the building.
Small businesses may find that landlords are offering few concessions in this tight commercial real estate market.
“The biggest challenges for small firms looking to expand revolve around leverage. In many cases, small firms that are doing well, growing, and want to provide a positive workplace experience will find it hard to negotiate with landlords for the things that they want,” Dolan says, adding that tenants seeking a few thousand square feet in a 300,000-square-foot building are a very low percentage of a landlord’s building or portfolio. “In terms of construction, if you’re getting the landlord to give dollars, they will be looking for a longer term. If you’re willing to sign a five-year lease, they may offer you a free month’s rent and some dollars for improvements.”
Small businesses face more scrutiny when borrowing money to expand than larger competitors with well-established banking relationships and good credit, notes Senior Vice President Edward Galan, a team leader in commercial lending at Provident Bank. Many small companies are set up as partnerships and LLCs, where partners take distributions each year to cover salary and taxes.
“This can result in a lower equity base if all or most of the income is distributed each year,” Galan says. When applying for expansion financing, lower equity may force a company into the bank’s leveraged lending area, or to look to the SBA or EDA to partner with the bank and to guaranty the loan. These loans are more regulated by the FDIC and OCC and, therefore, pricing will be higher and more frequent financial reporting will be required. “If you are looking for a working capital line of credit, it may need to be on some type of asset-based monitoring.”
Traditional lenders such as banks are cash-flow lenders and they want to see a track record of stable growth and a plan for continued profitability.
“We are looking for three years of profitability,” Galan says. “Your gross profit margins should be stable, and we also like to see a net profit margin in excess of 2%. The bank wants to know that your expansion will not just be volume, but will make your firm more profitable.”
Advice from Edward Galan, a team leader in commercial lending at Provident Bank
To access more business news, visit NJB News Now.Related Articles: