Business This Report Recommends Online, Inc.\'s Relocation

Business

This report recommends Online, Inc.'s relocation from San Francisco to Dallas. There are substantial savings in the major components of operating costs including office space, labor, and overhead. Exhibit 1 contains a breakdown of the estimated annual operating costs for Dallas which totals just $3,253,373. Labor and overhead will be approximately $433, 836 lower in Dallas with other savings potential coming from very inexpensive office space and lower tax rates. Also, the quality of life is very attractive to Online as a corporation and to its employees.

Data has been gathered from a variety of sources to calculate the cost of office space, replacement labor, and overhead. The findings show potential savings across all categories. First, the total cost of meeting Online's square footage requirements for sales office, manufacturing, and warehousing is only $148,000. Dallas is currently experiencing a tenant's market and offers many affordable options for renting space.

Replacement labor costs are also significantly lower in Dallas than San Francisco as shown in Exhibit 2. This report assumes that Online will not be adjusting the pay scale of employees that it transfers from San Francisco to Dallas. Online will save approximately $399,360 if it replaces thirty factory workers, ten management and professional staff, and fifteen sales and customer service employees with employees hired in Dallas. Although the cost of sales employees will be $27, 456 higher in Dallas, this figure is significantly offset by a reduction in the cost of factory workers of $290,160 and a reduction in the cost of professional and managerial employees of $136,656. As Online continues to expand its business operations, labor savings could potentially be in the millions.

Finally, Online will also enjoy substantially lower overhead costs in Dallas. Based on a nearly forty-three percent reduction in the cost of living in Dallas vs. San Francisco and Online's current overhead of $60,000 per year, the annual overhead savings of relocating to Dallas will approximate $34,476.

Dallas was voted the number one best city for business by Fortune Magazine in 1999. Online can expect to draw on the talents of a highly capable workforce thanks to Dallas's thirty-one colleges and universities and more than one hundred technical and vocational schools. Dallas's population is well over one million people with a median age of 32. Taxes in Dallas are low, with no personal or corporate state income tax. The unemployment insurance tax rate is 2.7% and the corporate franchise tax is.25% per $1,000 of net taxable capital and 4.5% of net taxable earned surplus.

Online's employees will experience a great quality of life in Dallas. This city has been voted as one of the ten best U.S. cities to balance work and family life by Fortune Magazine for eight consecutive years. Dallas is a world-class city for culture, dining, shopping and entertainment. The city boasts 336 parks and provides a variety of recreational activities. Dallas is the number two sports city in the nation, with a nationally recognized football, hockey, basketball, baseball, and soccer teams. Housing is available in every form, fashion and price range. The median price for a new home is only $153,000.

In conclusion, Dallas offers dramatically lower operating costs and a friendlier business climate than does San Francisco. These do not come at the expense of quality of life which is very high in terms of availability of activities and cost of living. Online should seriously consider the Dallas relocation option as the major way it can positively impact its bottom line in our challenging economic environment.

Exhibit 1

Annual Operating Cost Estimation for Dallas

Office Space Rental1

Sales Office (5000 sf)

Manufacturing

Warehousing (5000 sf)

Total Cost of Office Space

Labor Costs

Cost of Replacement Employees2

30 Factory and Warehouse Workers3

10 Management and Professional Staff

15 Sales and Customer Service Employees