When I first moved to Orlando some 23 years ago I was staying in a hotel in Altamonte Springs. By chance at breakfast I met another couple that had relocated and they were going out to a place called Lake Nona. My bride and I and our baby and dog Hershey took a drive out “there”.
What did we see…well cow pastures and one subdivision. My realtor (God Rest her soul) told me there were these great plans. We had no schools close, no grocery store…literally we had to drive 30 minutes to Publix. Well flash forward to Nona today and it is insane….growth of housing, corporations, hospitals, college campuses and several high schools. I left…pocketing a nice bucket of change on the profits from a house I sold for 3x what I paid for it.
So why does it matter in business sales and why am I talking about this today. Well in business brokerage we have a term known as owner benefit. Owner benefit is the monies that flow from a business to an owner. Back in the day you could move to Orlando and Tampa for that matter and buy a business and a house and do it all for under 200k and live quite well. Simply put your dollar went further.
As I listened to the news this morning there was a discussion about a report of Gen Z moving to West Virginia due to affordability. In a world where inflation and cost of living has skyrocketed those Gen Z folks are doing what every generation does…the move to where they can leverage and with the onset of virtual work and technology …well those old dusty rust belt towns and decrepit coal mining towns are on the rise. Look for outlier states and towns to see growth from this trend.
Buying a business is an exciting venture, but it’s crucial to look beyond the surface glitter. While strong cash flow is a critical factor, savvy buyers shouldn’t overlook the affordability of the area where the business operates. Here’s why:
1. Cost of Living Impacts Your Bottom Line:
- Wages and Benefits: A seemingly attractive cash flow might be squeezed by high employee salaries required to attract and retain talent in a pricey area.
- Operating Costs: Rent, utilities, insurance, and other expenses can vary dramatically between regions. Factor in higher costs for these items when evaluating profitability.
2. Lifestyle Considerations Affect Employee Retention:
- Competition for Talent: In expensive areas, skilled workers may have more options, leading to higher turnover and recruitment costs.
- Quality of Life: Can you offer competitive salaries and an attractive lifestyle (e.g., affordable housing, good schools) to attract and retain top talent?
3. Hidden Growth Potential (or Roadblocks):
- Market Saturation: Is the high cost of living limiting your customer base or growth potential in that area?
- Emerging Markets: Consider the affordability of up-and-coming areas with lower costs and potentially higher growth potential.
So, what should you do?
- Compare costs across locations: Research salaries, rent, utilities, and other expenses in different areas.
- Factor in lifestyle factors: Analyze housing costs, commute times, and amenities relevant to your target employees.
- Consider future growth: Evaluate the affordability’s impact on expanding your customer base or entering new markets.
- Talk to locals: Connect with business owners and residents to understand the real deal on affordability and its impact.