How to Evaluate Expansion Opportunities

Where do you go?

When looking to expand your current facility within the same geographic area — distinguished from opening an additional location or facility nearby — most companies find that expanding into land that shares a property line with your current location (known in real estate parlance as contiguous property) is the easiest way to go. While contiguous expansion has significant advantages, many agricultural operations find that it’s not critical, especially when noncontiguous space offers a significant cost advantage. Being willing to consider noncontiguous properties, even those a few blocks or a couple of miles away from your current location, can provide price advantages and a larger selection of attractive sites. It also reduces leverage for a neighboring property owner who thinks he or she can sell or lease a contiguous site at a significant profit because of the convenience which it offers. Additionally, in today’s world, with the ease of communication between remote locations, many operators find that there is no operational disadvantage — and often unexpected advantages — to having a facility spread over multiple locations, especially when the price of entry can free up capital needed to otherwise grow and develop the business.

How will you acquire the space?

Another consideration of expansion is how you’ll take control of the property you’re seeking to utilize. Purchasing and leasing, or even entering into a short-term license agreement, each have their pros and cons. Generally speaking, purchasing property on which you intend to build a facility provides the greatest measure of control, but also requires the greatest up-front investment. Beyond the purchase price and construction costs, take into account the fees of the various professionals who will help you evaluate the property; examine title; conduct geotechnical, soils and environmental studies; and obtain the approvals and permits necessary to construct and operate. Some companies enter into ground leases or build-to-suit arrangements as a way to structure the financial investment needed to expand. Others find already constructed facilities that require little customization and are prime targets for short- or long-term lease arrangements. Remember that whenever a company looks to lease a facility, the greater the investment the company looks to make, the longer the lease term (or additional options to extend an initial lease term) should be, to protect the company’s investment.

The path between realizing a company wants or needs more space, and moving into or onto that new space is full of twists and turns. There are many decisions to be made, and considerations to be taken into account, with nuances unique to every company and business model. The key to all of this is being mindful, organized and considerate in your approach. Don’t assume that because you have a facility in one place, the new area must be immediately adjacent. Likewise, just because you’ve always leased your facilities, don’t discount the prospect of making a strategic purchase. Good opportunities are available, and if well executed, a need for more space can serve as a multiplier: giving a business an opportunity to use the needed expansion as a way to not just meet a need but also to optimize processes and look at business strategy through fresh eyes.

Whom do you call to learn more?

Any time a business is exploring the prospect of expansion, your county or town planning department and local realtors can serve as excellent sources of information and assistance. As choices are narrowed and decisions regarding the type of expansion are reached, a business-oriented transactional attorney who can help negotiate the deal, structure the transaction, prepare the documents, and oversee the inspections and due diligence, can be a great partner in the process. Finally, engaging the company’s financial professionals and CPAs is critical to ensure that the new acquisition is integrated with the company’s overall tax and financial strategy. With a bit of advance planning and the help of a team of professionals to guide you, the decision to expand your business’s footprint can do more than just meet a need; it can be the first step to a more profitable future.