Business Expansion Policy Deployed

Incredible Result: “We are finding and capturing each acquisition and expansion opportunity which is out there to help us grow.”

Avoidable Train Wreck: Business expansion opportunities start to be lost or ignored.

Main Play: The “Find It” Expansion Protocol

What This Is: This program, taught to your Profit Strategy Team, shows how to purchase businesses which fit, expand at existing or new sites and develop or acquire new technology rights, all aimed at driving your profitable growth.
 

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A healthy, growing Company will seek expansion opportunities throughout its life. The often repeated line that says if you aren’t growing, you’re dying, is true. Many business owners who enter or are in their Fourth Quarter often take their foot off the gas pedal. This can have disastrous effects, as it can precipitate a slide down a slippery slope, turn off the interest of possible successors and business buyers, and result in the loss of your customer base, which begins to see your Company as no longer responsive to their growing needs.

Over the past several years companies have become much more analytical in making their decisions on their Expansion Policies. In addition to a focus on strong internal (so-called organic) growth, a strong overall Expansion Policy will focus on consistently looking for opportunities to purchase other businesses, to expand at existing or new sites, and to develop or acquire new technology. The motivation behind this is pretty simple, which is this. One of the principal keys to business success and profitability is to operate from the right locations, for the optimal business market, under the right economic, demographic and technology conditions.

This increasing focus has been due to a number of factors. These include changing demographics, competitive pressures, new strategic sourcing techniques, more sophisticated distribution methodologies, increased shareholder scrutiny, business expansion, merger/acquisition activity, changing technologies, and cost containment efforts.

Adding to this effort to find the right location under the right economic conditions is the fact that businesses today can be much more mobile than they were in the past. Vast improvements in the transportation industries and the voice and data communication industries have enabled many companies to operate from any of several different locations. Therefore, these companies have tended to more aggressively seek locations that have the most favorable business climates.

Business Acquisition

The biggest mistakes we’ve seen with business acquisition policies is a failure to consider how the 3 ingredients of the Pioneer Success Formula will line up between your existing company and the business you are acquiring. If the 3 ingredients of Business Model Command, Dynamic Leadership Core and Root Force Culture are not thoroughly thought through during the acquisition process, the likelihood of a happy merger is remote.

Site Expansion

The biggest mistake we’ve seen with moving to or adding new sites is the failure to fully investigate the State and local business climate for the new or expanding sites. This includes the impact on the 3 ingredients of the Pioneer Success Formula. For example, how does the new or expanding site impact the Cost Structure or Customer Channel parts of your Business Model.

State taxes now total about $1.4 trillion annually, which become a significant cost to companies. So, a key component of site expansion policy is the state tax climate and the value of State and local business and tax incentives and inducements. (This is a planning topic touched on below, which we cover in more detail in our State Tax Anatomy Series).

Competing State Business Climates

As consumers of numerous products and services provided by the business community throughout the country, we are all taught to believe and understand that competition is a good thing. The result of competition is better products and better services at more competitive prices. In order for the business community to be able to accomplish this, business enterprises have needed to become more and more productive and efficient.

The business factors affecting business profitability and success which a State can positively or negatively control or directly impact are the factors which make up that State’s business climate. These factors impact the competitiveness of that State amongst other States.

Utilizing State Business Incentives

Every year, State and Local governments award billions of dollars in State Business Incentives to those businesses throughout the country who actively seek these benefits as part of their site location and expansion decisions. These incentives are used by State and Local officials as a way to help incent the addition or retention of jobs and investment in their community.

The availability of most incentives is normally dependent on the Company actually identifying, seeking and applying for the incentives before undertaking a project expansion or relocation. Often these incentives need to be negotiated with the State or Local communities as part of an overall site selection and incentive package. A typical incentive package will be based on the level of projected new jobs and/or new investment the Company will add to the community. Some incentives are being awarded for company restructurings or retoolings that do not require net job increases.

Nebraska’s Approach to Tax Incentives

My home State of Nebraska provides a good example of the potential tax incentives available to growing companies in many States.

Nebraska provides many of the State Business Incentives in use today. Nebraska’s incentive programs create a package that is substantial enough to impact a Company’s location decision. At the same time, its incentives are performance-based, generally requiring the Company to meet and maintain certain designated new job and investment thresholds in order to earn the tax benefits.

Nebraska’s program is of particular interest to me because I have been the principal designer and drafter of Nebraska’s main economic development incentive programs, beginning with the 1987 Employment and Investment Growth Act (known as LB775) through its successor in 2005, the Nebraska Advantage Act (known as LB312), including several additional incentive programs enacted in between. These programs have incented the creation of over 850 expansion projects, with over $30 billion of capital investment and over 100,000 new jobs in Nebraska.

For over 30 years, the Employment and Investment Growth Act and the Nebraska Advantage Act have been Nebraska’s principal incentive package. These substantially reduce a Company’s income, sales, withholding and personal property taxes for the life of the project if certain new job and investment thresholds are met by qualifying types of businesses.

The “Find It” Expansion Protocol

Growing companies need to develop an express policy towards business acquisition, site expansion and technology development which lines up with their Pioneer Success Formula.

This provides you with the opportunity to further enhance your Company’s growth and value throughout your First, Second, Third and Fourth Quarters.