Choosing a location for a new business is one of the most important decisions entrepreneurs make during the planning phase of launching ventures. The location of a business can affect many aspects of how it operates, such as total sales and how costly it is to run. Even home-based businesses and online businesses can be affected by location-dependent rules and regulations. Every business owner must figure out how location will (or won’t) contribute to the success of the business — and choose a spot accordingly. With that said, there are many issues to consider when you’re looking for space to house your business.
Location is of utmost importance to businesses that sell goods or services directly to customers at brick-and-mortar establishments. But for other enterprises, location may be much less important than finding affordable rental space. In fact, location is almost irrelevant for some businesses: service businesses that do all their work at their customers’ locations (such as roofers and plumbers) and businesses that have little contact with the public (such as mail-order companies, Internet-based businesses, and wholesalers). If these types of companies can pass on rent savings to their customers and their profit margin, picking a low-cost spot in an out-of-the-way area might be an advantage. For example, a card shop located in a popular mall is likely to attract more customers than a similar shop located in a run-down part of town. Location can also influence a business’s ability to market itself. A business with a storefront on a busy street is more likely to attract customers with signs and storefront displays than a business that is not in a busy area.
The key to picking a profitable location is determining the factors that will increase customer volume for your business. Keep in mind that different types of businesses attract customers in different ways. One key distinction is foot traffic versus automobile traffic. For example, if you’re opening an urban coffee shop, you may assume your customer volume will be highest if there’s lots of pedestrian traffic nearby during the hours you plan to be open. On the other hand, for an auto repair shop, the choicest locale is a well-traveled street where the shop will be seen by many drivers who can easily pull into the lot.
A business’s location can affect the competition it faces from businesses that sell similar products and services. For instance, an upscale neighborhood in a major city might have dozens of ethnic food restaurants, while a small town might not have any businesses that sell ethnic food. Starting a business in an area with few direct competitors can increase the likelihood of attracting customers. Also consider whether it would benefit your business to be around similar businesses that are already drawing the type of customers that you want. A women’s clothing store, for example, would no doubt profit from being near other clothing shops, since many people shopping for clothes tend to spend at least a few hours in a particular area. Spend some time figuring out the habits of the customers you want to attract, and then choose a location that fits.
Chances are that you’ll rent rather than buy a space for your business. Most small start-ups don’t have the funds to purchase real estate, and it’s usually not a good idea to saddle your business with high interest payments in any case. One obvious and important concern when looking for commercial space to lease is finding a place that you can afford. When you projected your financials (as part of your business plan), you should have estimated how much rent your business would be financially able to pay each month, given its projected revenues and its other expenses. The location of a business can influence the total cost of operation. Renting a storefront on a popular street or in a highly trafficked mall is likely to be more expensive than opening a store in a small commercial district in a residential area.
Brokers and agents are great sources of information on rental costs in various neighborhoods. They’ll generally give you an average figure for the cost of commercial space per square foot per year in a given area. Once you have this figure, you can compare it to the costs of other spaces you’re considering.If you haven’t done so already, research the average rental costs in your area to make sure the amount you budgeted for rent makes sense, given the cost of commercial space in your area and how important location is for your business. For example, if you determined that location is very important to your business, make sure your budget will allow you to rent good space given the average cost of space in your area. If not, you may have to rework your business plan. Additionally, you must consider taxes. The location of a business determines the state and local taxes that owners have to pay and the regulations they must follow. Income tax and sales tax rates vary from one area to another, which can have a significant impact on a business owner’s earnings. Government zoning laws can limit the size and construction specifications of buildings and the use of signs. State and local laws can also affect the types of permits and licenses necessary to operate a business.
When choosing business space, the biggest consideration is sometimes not where it is but what it is. The building facilities need to be appropriate for (or adaptable to) your business. For example, if you’re planning to open a coffeehouse, you need a place with at least minimal kitchen facilities. Unless you can convince the landlord to put in the needed equipment — plumbing, electrical work, and the rest — it’s highly unlikely that laying out the cash to do it yourself will be worth it. In short, if a building lacks something major that is essential to your business operation, you should probably look for something else. Before making your final decision to move into a space, you must consider your communications wiring, electricity and air conditioning expenses, parking space allotment, and zoning.