Green Industry Perspective: Considerations When Expanding Facility Space

Your green industry business is growing! This is great, but can your current facility space and infrastructure support this? Keep these 15 points in mind when you are planning to expand your facility space:

1. Location: When expanding facilities space, consider proximity to your target market and existing client base. It’s ideal to have great route density, but does your facility space align with the location of your routes? Additionally, assess accessibility for your equipment and workforce to streamline operations and reduce transportation costs.

2. Outside of The Box Alternatives: look into other ways for the property to generate additional revenue.

a. Multi-use property: Maximize the utility of your facilities space by considering multi-use properties. Leasing out a portion of the property can generate additional income to offset expenses. This diversification can provide a steady revenue stream and enhance overall profitability.

b. One of our clients launched a farmers market on their property. Organize a farmers market on your property where local farmers and artisans can sell their produce and handmade goods. Charge vendors a fee for participating.

c. Convert unused areas of your property into RV or camping sites. Provide amenities such as electricity, water hookups, and restroom facilities. Charge campers a nightly or weekly fee.

3. Risk Management & Asset Protection: By placing the building within a separate LLC, you create a legal barrier between your personal assets and the property. In the event of lawsuits or creditors pursuing claims against your landscaping business, the assets held within the LLC, including the building, may be shielded from seizure or liability, protecting your personal wealth.

4. Cost Savings through Bulk Purchasing: Expanding facilities space provides the opportunity to store inventory and plants in bulk, leading to cost savings. Analyze procurement processes and assess the feasibility of purchasing supplies in larger quantities. Negotiate favorable terms with suppliers to capitalize on volume discounts and improve overall profit margins.

5. Temporary Structures: Deploy shipping containers as temporary structures for seasonal operations or expansion projects. These versatile containers can serve as temporary offices, break rooms, or additional storage space during peak seasons.

6. Remote Work Opportunities: Evaluate roles within your business to determine if certain staff members can work remotely. Embracing remote work arrangements can reduce the need for extensive office space and associated overhead costs. Leverage technology to facilitate seamless communication and collaboration, enhancing operational efficiency without compromising productivity.

7. Data-Driven Decision Making: Base expansion decisions on empirical data rather than personal preferences or biases. Take ego out of the equation! Conduct a comprehensive financial analysis, including cost-benefit assessments and projected returns on investment. Prioritize objective metrics such as revenue potential, cost savings, and market demand to guide strategic decision-making.

8. Advertising Opportunities: Capitalize on high-traffic areas near your property by leveraging advertising billboards. You can either advertise your company or charge other businesses to advertise. Evaluate the feasibility of installing billboards based on local regulations, target demographics, and potential return on investment.

9. Housing: We work with some clients that utilize parts of their property for H-2B Worker housing. This can enhance convenience and accessibility for workers, especially if the company is located in remote or rural areas where housing options may be limited. Offering onsite housing can contribute to higher employee satisfaction and retention rates. Providing comfortable and convenient living arrangements demonstrates the company's commitment to the well-being and welfare of its workers, fostering loyalty and reducing turnover.

10. Facility Space Based on the Business’s Size: If you are moving into a larger space, there is a risk that is associated with this. Have a proven track record of growth and plan to generate additional sales to support this additional fixed cost. If you have confidence that your operations will support this large facility space, then move forward with the plan. Keep in mind that this fixed cost will need to be supported in the slow season as well!

11. Property Type: Commercial properties are purpose-built for business activities and offer distinct advantages and considerations compared to residential properties.

a. Commercial property acquisitions often involve substantial capital investments, necessitating financing through loans or mortgages. Maintaining a strong business credit profile is essential for securing favorable financing terms and interest rates. Lenders assess factors such as business revenue, profitability, credit history, and asset valuation when evaluating loan applications. Ensure that your landscaping business has a solid financial track record and sufficient collateral to support the loan.

b. Commercial loans typically require collateral to secure financing, mitigating the lender's risk in case of default. Collateral may include the property itself, business assets, or personal guarantees from business owners. Assess the value and liquidity of your assets to determine the feasibility of meeting collateral requirements.

c. Unlike residential mortgages with long-term fixed terms, commercial loans often require periodic renewal or refinancing. These renewals typically occur every few years, subjecting businesses to potential fluctuations in interest rates and financing terms. Account for the renewal cycle when planning your financial obligations and cash flow projections. Monitor market conditions and explore refinancing options to secure favorable terms and mitigate risks associated with loan renewals.

12. Additional costs in considering a space: In addition to the initial purchase or lease cost, consider other expenses associated with expanding facilities space. Factor in maintenance, utilities, property taxes, insurance, and potential renovations or upgrades. Conduct a thorough cost analysis to accurately estimate the total investment required and ensure alignment with your budgetary constraints. Another example would be to ensure compliance with local zoning laws, building codes, environmental regulations, and other legal requirements when expanding facility space. Factor in any additional costs or restrictions associated with specific locations or property types. Failure to comply with regulatory requirements can result in fines, delays, or even legal consequences, impacting the business's finances and reputation.

13. Renting: Renting a facility offers flexibility and requires minimal upfront investment. It's ideal for businesses with uncertain growth trajectories or limited capital resources. From an accounting perspective, renting allows for predictable monthly expenses, simplifying budgeting and cash flow management. However, it's essential to factor in long-term rental costs and potential rent increases when evaluating this option.

14. Leasing: Leasing provides a middle ground between renting and buying, offering more control over the space without the full financial commitment of ownership. From an accounting standpoint, leasing enables businesses to spread out the cost of occupancy over time, preserving capital for other operational needs. Additionally, lease payments are typically tax-deductible, providing potential tax benefits for the business.

15. Buying: Purchasing a facility offers long-term stability and potential equity appreciation. It provides complete control over the property and eliminates concerns about rent hikes or lease renewals. From an accounting perspective, buying allows businesses to capitalize on property appreciation and potentially benefit from tax deductions such as depreciation and mortgage interest. However, it requires a substantial upfront investment and entails additional responsibilities such as property maintenance and insurance.

Often, there is more than one way to approach a decision in your business. Keeping the above points in mind will ensure that you are prepared when considering expanding your business operations.

Learn more about Cycle CPA green industry accounting services here.