When it comes to business objectives, some processes and operations are most profitable when executed by an internal team located in a central location or major headquarters. Typically, these buildings exist in high-cost, high-demand markets. For instance, local sales teams located near major highways can easily meet with customers and clients to earn and retain business. Or, a team in charge of organizational partnerships should be located in a central business district to facilitate meetings with other local leaders.
The same is true for your organization’s proximity to necessary resources. Your location can save your team time and money when creating new products, sourcing new materials, or coordinating with other key stakeholders for your company’s continuity.
That prime location is highly dependent upon your industry. Some organizations thrive in retail districts, while others require industrial parks. For example, a national insurance company needed to be two turns off the highway, while another company that provides automotive service needed to be in a high-traffic retail location to ensure easy access for their customers.
Other operations, or non-core operations, might actually be costing your company money if located in an unnecessarily expensive market. For example, warehouses, manufacturing facilities, back-office operations, or teams that spend most of their time traveling don’t need a homebase in a high-cost market.
Organizations can cut costs and increase cash flow by relocating non-core activities away from high-cost markets—no matter their industry.
How to Distinguish Between Core and Non-Core Business Activities
Every organization has both core and non-core business activities. While they will look different from business to business, it’s essential that your organization evaluates and identifies both core and non-core initiatives, and then makes any necessary changes to optimize your finances.
- Core activities: These are strategic functions that increase customer value, fuel financial growth, and contribute to a strategic advantage over competitors. Examples include sales, product development, and high-level leadership.
- Non-core activities: These are daily, routine tasks that don’t directly drive profits. While non-core activities are very important, they take place in the background and serve to support the core activities. Examples may include work done by the payroll department or distribution team.
To determine whether a business function is core activity, ask yourself these questions:
- Will this task bring a competitive advantage to my company?
- Is my internal team capable of handling this task efficiently and effectively? Or should it be outsourced for cost savings?
- Does the revenue generated from this task outweigh the cost to rent real estate in the current market?
- For this specific activity, do clients and customers come to this location? Or do employees travel to them?
Benefits of Relocating Non-Core Operations
In virtually all cases, there are major benefits to reevaluating and relocating non-core operations.
- Lower rental costs and the potential for lower tax burdens in other markets are the main incentives for relocating non-core activities.
- Increased operating capital from your rental savings can free up funds to invest in, attract, and retain more higher caliber employees, pay off or pay down debt, and invest in additional commercial real estate (CRE).
- Your new non-core location could earn you tax credits or other economic incentives for creating new jobs in a developing market.
- You may also be able to downsize your remaining footprint in the high-cost market, saving additional money on rent. See how a Fortune 1000 company did just that.
When you have a clear understanding of your core and non-core activities, you can make sound decisions about reallocating CRE spend for better financial stability.
However, the relocation process can be challenging. That’s why it’s essential to rely on an experienced real estate broker to help guide you through the process. The Allegro Real Estate Brokers & Advisors team has helped many organizations find the right market and space to relocate their non-core activities, and we’ll do the same for you and your team. Contact us today to get started.
Want More Commercial Real Estate Resources?
Our blog features frequent content, straight from our commercial real estate experts. Subscribe to receive weekly content right in your inbox, on topics like advice and opinions on the state of the industry, market reports, and updates about the Allegro team.