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Branching Out Requires Much Research and Drive

Written by  Lisa Kopochinski

tower potAdding a second location could be just the right move to elevate your company to the next level. But if you don’t do the proper research, you could end up hemorrhaging your main office with disastrous results. 

For instance, did you know that there is a difference between expanding and setting up branches offices, and there are also different definitions within the cleaning industry of what a branch office is?

For some BSCs, a branch office can be a dedicated leased or owned space in a commercial building, which is the traditional brick and mortar branch office. Or it could be a one-cubicle office within a client’s facility, or a home office of the branch manager.

“The facility requirement is largely based on the size of the branch and what functions the branch will perform,” says John Ezzo, owner of New Image Building Services, which is headquartered in Mt. Clemens, Mich. (a suburb of Detroit). “If you opt for a home office or small space within a client’s facility, you can rent local meeting rooms if needed.”

Kevin Rohan, owner of Cavalier Services, says expansion could be natural growth from the central hub where your corporate office is. A veteran of the cleaning industry, Rohan founded Cavalier Services in 1977. The company’s main office is in Fairfax, Va., and there are two branch offices in Virginia and North Carolina. “Some will call a branch one site with a manager and several people. We call that a site or location.”

Rohan also considers a branch as having a regional director on a site that is detached from any of its locations. “It has to be financially viable. Every time we’ve done it is because a client has asked us to go and do work in that region. And the work they have contracted with us to do is economically profitable; that means the cost of the office, the operation, facility, management, transportation equipment, everything.”

Paul Greenland, owner of Aetna Building Maintenance in Columbus, Ohio concurs. Aetna was formed in 1936 and today has nine branch offices in five states and 1,500 employees. He says that to open an office, you need a large enough anchor to support a fulltime salaried manager.

“Know what you know and know what you don’t know. In other words, why am I opening in this new market? Is this a one-account market for us or are we able to expand in the market?”

Greenland says that when expanding, it is essential that his company feels it can add value in the marketplace, either by being able to price lower than the competitors, provide a higher quality of service than the competitors, or a mix of the two that isn’t being served. “Finding the right manager, who can grow the market, is paramount to our success.”

Probably the most critical key to success of a branch is the person running it. Depending on how far the branch is geographically located from the corporate office, it could be weeks that the branch manager works independently without one-on-one contact with other corporate managers. So it is imperative that the person running the branch is self-sufficient and trustworthy.

“It’s very difficult to establish branch offices if you don’t know the terrain,” says Rohan. “You need to know what it takes to operate in different areas and that varies widely depending on whether you are going to large, medium or small cities, or rural locations. You need to have the wherewithal to play in all of those venues.”

The Right Time

How do you know when it’s the right time to expand locations? There are a number of factors that should be taken into consideration. Ezzo says that a branch office can be a good strategy for several purposes, including launching a new territory, managing an acquisition, or responding to a client need in a different territory. The lowest risk is to grow a branch due to a current client-driven opportunity.

“You know the client, you have a payment history and they want you to grow in order to service more of their facilities. Such an opportunity can fund launching the branch. We have found that $500,000 or more in business can support a branch office.”

Greenland says there are a number of factors that could indicate it’s the right time, such as when a current customer asks you to look at the market (as mentioned above); or when you have slowed growth in your current market, or your main market economy isn’t expanding.

Rohan adds that if you are not ready for the challenges of a branch, it can be a wake-up call. “It’s going to drain the resources of your corporate location, ownership and management if it’s not properly set up or if the right people aren’t hired. If it can’t support all of your disciplines that you do in corporate, there’s a good chance it will either struggle or fail.”

If you are considering adding an additional site, it’s an excellent idea to make a list of the pros and cons. Pros on the list include your ability to diversify your customer base in a new market. “A new market might expose you to better ways to run your business,” says Greenland.

On the con side, consider the distance and how long it takes to get to the new branch from the main office and the cost involved. “Your new branch management will need different skill sets than your management at the corporate office since they are not ‘down the hall,’” says Greenland. “Travel is not productive time and it is costly!”

Finding the right location is also imperative says Guy Mingo, CEO with Marsden Holding in St. Paul, Minn. “Applicants need to have easy access and preferably on a bus route.”

Marsden, a $210-million company with 8,000 employees, provides janitorial, security and mechanical maintenance services in more than 30 states with 36 branch and regional offices. “Having a location that is centrally located to the business and client base is the other priority,” he adds.

The pros, says Mingo, include increasing your market share, reducing travel-related costs, while increasing productivity of the operating group. “You are closer to customers in some cases.”

On the con side, you will definitely be looking at additional costs that could be substantial. “These include the cost to buy or lease space,” Mingo says. “Either buying or leasing will require a longerterm commitment and is not easily terminated. Be sure you are committed to the market area before you buy or lease.”

Additionally, there will also be less control and direct communication with the staff operating in the branch, that are no longer tethered to the main office. And there is the duplication of cost for equipment and staff. There could also be potential new taxes, different insurance/workers compensation rates too.

Technology Helps Immensely

In today’s increasingly technological-savvy world, reporting, accounting, payroll and inspection software all help greatly in the task of adding a new location.

Ezzo knows the benefits of using technology wisely. Over the past decade, New Image has expanded and diversified. The company was generating $4 million per year in revenue when it moved into its current headquarters in 1996. It is now generating $20 million in revenue with limited facility needs beyond what it had 14 years ago.

“Most of us work very well remotely with blackberries, laptops, conference calls and video-conferencing,” says Ezzo. “We use TEAM financial software to operate most of our business. We have implemented TEAM’s E-Hub feature allowing managers to remotely access the system and approve and edit reports, time keeping, etc. Many of our managers have home offices with remote access to our systems.”

The company has also done well setting up offices in its clients’ facilities, including being able to receive mail there and hold interviews or larger meetings.

“I found a favorable response to us having an office and address in one of our client’s facilities. What a great example of partnering with our clients.”

Rohan emphasizes that while technology helps implement control over a number of locations, it should not replace human contact. “It does not take away from the human element and the face-to-face relationships that managers have to develop. But it can certainly support their efforts and can stretch them a little bit thinner to the number of locations they can handle.”

Conversely, technology can be helpful in consolidating offices if a company finds they have too many locations. Unnecessary overhead expenses can be eliminated without sacrificing effectiveness.

“And with free wireless internet available in many public places,” adds Ezzo, “meetings can be held at a local coffee shop for the cost of a couple cups of coffee.”

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