Truth 16. Choosing a location for your business
As a new business prepares to get up and running, there are a number of decisions that must be made. One of the most significant is where the business will be located. A good choice of location can help a business get off to a solid start, while a poor choice can have the opposite effect. A poor choice can also be difficult to fix, particularly if a business signs a long-term lease or purchases property.
Fortunately, there is a standard set of issues to consider when selecting a business’s location.
For some businesses, location is key, while for others it’s almost irrelevant. For example, many service businesses—such as painters, electricians, mail-order companies, and Internet businesses—don’t interface directly with the public, so their physical location isn’t a major issue. In fact, these businesses often seek out nondescript locations to economize on costs. In contrast, location is an extremely crucial issue for retail stores, certain service businesses, and professional practices (like doctor’s offices) that deal directly with the public.
A good choice of location can help get a business get off to a solid start, while a poor choice can have the opposite effect.
If location is important, what type of location will work best for you?
The key consideration here is to pick a location that will increase your flow of customers. Start by asking yourself the following questions:
Will my customers come on foot, or will they drive and need a place to park?
Will more customers come if the business is located near other similar businesses?
Will more customers come if the business is located near complementary businesses?
Do the demographics of the trade area the business will be located in make a difference?
Answering these four questions can go a long way in helping a business owner select an appropriate location. For example, if you’re opening an urban bagel shop or a similar type of business, you’ll want to locate in an area that has a high amount of foot traffic. In contrast, if you’re opening an auto parts store or a convenience store, you’ll want to be on a busy street where the store can be seen by drivers who can pull into your parking lot. In terms of being near similar businesses, clothing stores and jewelry stores, for example, often benefit by being near similar businesses, since people like to comparison shop. A hair salon or barber shop, where comparison shopping isn’t as much of an issue, may do better by itself. Some businesses benefit by locating near a big-box store like Wal-Mart or Target, because their customer bases are similar and they benefit from the increased traffic. An example is Sally’s Beauty Supply, which appears in 26 percent of U.S. Wal-Mart-anchored shopping centers.[1] Similarly, some businesses benefit by being located near complementary businesses. Ice cream shops, for example, do better when they’re located near movie theaters and restaurants.
An extremely important issue is whether the demographic makeup of a trade area is suitable for a particular business. A high-end clothing boutique, for example, needs to be in an affluent area. Stores that sell children’s clothing do better in areas with a high percentage of young families than in areas with a high percentage of retirement-age people. You can obtain the demographic breakdown of most communities in the United States (and even zip codes within communities) via American FactFinder (http://factfinder.census.gov), which is a Census Bureau Web site. Another good source is City-Data.com (www.cita-data.com), which contains similar and often more current demographic information on U.S. cities and towns.
How much can you afford?
A third consideration is how much you can afford. This is a tough issue, because the best locations invariably are the most expensive. Most businesses that aren’t home-based businesses rent or lease property rather than build or buy, which reduces the cost some.[2] The best way to determine the rental or lease rates for a particular area is to talk to a real estate broker or agent. Ultimately, a business can only occupy premises that it can afford. There is no practical way around this issue other than to carefully weigh your financial priorities. In some cases, a business, like an urban bagel shop, may be better off spending more than originally budgeted on a premium location and less than originally budgeted on ancillary items like computer equipment or the restaurant’s decor. You need to dedicate limited resources to the areas that ultimately will make the largest positive impact on your business.
Is the physical structure you’re considering adequate?
Once you locate a property to lease or rent, you should be careful to make sure it is adequate for your business. For example, if you are considering space for an Internet business, it will need to be wired to connect to a fiber-optic network or a T1 line (high-volume Internet connection). If you will be cooking in a building, it may need to be vented in a certain manner and need additional plumbing and electric work. While these issues may seem obvious, it’s often a matter of negotiation regarding who will pay for the upgrades that are needed. If you can’t convince the landlord to do the necessary work, a seemingly ideal location may be cost-prohibitive. There are other issues that are potentially negotiable, so make sure you think through your circumstances carefully. For example, if you open a retail store in an enclosed mall or strip mall, you can often negotiate what’s called a restrictive covenant to prevent the landlord from leasing space to one of your direct competitors.
Complying with local zoning laws is another principal issue. Never sign a lease and occupy a property until you’re confident it’s zoned for your type of business.