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Expansion or contraction: which way are you going?

May 1st, 2011 / By: / Graphics

In 2001, after being in business for nine years, our company was faced with a decision about the existing facility. The business continued to grow, and with growth came a need for more space by expanding from one unit to three of a four unit building, with no possibility of taking over the last unit. That time represented a real turning point, not only in the direction the business took, but in the thought process we used to face future growth—or contraction.

Workforce

Our first concern in finding a new facility was location in proximity to workforce supply. This was and continues to be a predominant factor in all decisions. We could see the deterioration of what we needed in entry- and mid-level workers. Thus, our second location took us farther into the suburbs where there was a huge building boom taking place. Although the population growth allowed the head counts, it was only through the local community economic development agendas that we saw plans for implementation of a long range training program through cooperation between local government, education and business and industry.

Facilities

At this time, we were better off owning our building than renting it. Not finding what we needed in an existing facility, we decided to find land and build. With funds being limited, we sought local government cooperation through obtaining an Industrial Revenue Bond. We found land that would accommodate a 50,000-square-foot building, with space for an additional 20,000 square feet.

Paperwork was completed for the IRB and preliminary plans were made on the building when, a day prior to approval, we were informed that the existing bond funds were to be split between us and another company. Having already set in motion plans for new equipment needed to take us to the next level of growth, we decided to cancel our build plans and go to option B, that of leasing an existing building.

Leasing was the fast route of getting into a new facility. The building owner gave us five months free rent to get the building ready, which turned out to be the time needed to set up electrical, phone, IT, HVAC and equipment. In less than four years the space became too small. Our next facilities need was double what we had and would have put us over space availability had we made the building purchase.

The lesson is that decisions to expand should be accompanied by a plan B. If things don’t turn out as planned, how will you cover the additional overhead, as well as money put into your growth plan? We relied on a strong business plan that was reviewed annually.

Fast forward to 2009. We are again set with expansion needs as we doubled the original space leased in 2001 and are now finding that instead of a facility that allows for good production flow, we have a need to rethink plant layout due to new lines and acquisitions. A new leased building allowed us to paint our own picture as to how we wanted the space to be. Again, the beginning of a downturn in our economy, but one that provided an opportunity to regroup and grow.

Why lease?

I am sure there are those more in the know than I that would suggest leasing is not the wisest decision. My theory is that investing in people and equipment is a wiser decision for us than using the same money to invest in a building. I would suggest that the proof is in the results of our economy over the past three years. We continue to have funds because we have invested in things that create growth within our company. I never thought about a building being my retirement fund. Growing our business was most important to meeting my long-term goals. My accountant said, “Who knows what is good. For you, it made sense.”

Finance

When times are good, lending institutions fall over themselves to make offers in support of any expansion plan. This is my last tidbit of insight: Find a strong financial “partner.” Note that I say “partner” and not “lending institution.” I have been a strong advocate of creating relationships for the long haul. If big banks work for you, great. Strong backed community banks seem to have suited our needs over the years in a far superior manner. Creating this partnership means that we are being proactive. We insist that the institution is not only a lender, but a financial advisor. They are part of our long-term plans and can advise us far in advance of pitfalls, thereby ensuring long-term financial stability.

In conclusion, you can tell I am more about growth than contraction. However, during the past 19 years we never proceeded without a sound backup plan. Have a means to cover costs incurred under any circumstance. Surround yourself with competent advisors. Develop your workforce to provide you with the ability to maintain a positive direction under any circumstance. Use your resources wisely.

Pat Hayes is founder and chairman of Fabric Images Inc., Elgin, Ill., a member of the Fabric Graphics Association and a director on the board of the Industrial Fabrics Association International.

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