Every business needs a location to operate out of. For some businesses location is not of prime importance, and thus the business can be located for the owners convenience. For most businesses, location is critical to the businesses success and survival. Selecting a location for your business is one of the most important decisions you will make. Choosing a business location is a large financial commitment that deserves careful consideration and planning.
To often a businesses location is chosen for the wrong reasons. Some of the reasons not to choose a particular location are, availably, low cost, it's availability, convenience, occupied by a similar business priorly, already owned, I like it. These are also good reasons, so long as the location is right for the business you have in mind, often the location is a poor to bad choice.
A good location has to fit the business not the other way around. Each business has specific needs that will make the business successful and the location must fill those needs. You, as the experienced party are best suited to make those decisions.
The top three causes of business failures are, lack of sufficient financing, lack of experience and a poorly chosen locations. I will assume you have the financing somewhat worked out as you are going forward with site selection, I will also assume you are experienced and banking on your number one asset, you. That leaves location, and we will discuss here the practical advice you need for choosing a location.
Importance of your location:
Your location has a direct effect, on your image, sales volume, overhead cost, taxes, advertising, getting and retaining staff, traffic, visibility, signage needs, and thus profitability. Each location should be evaluated from the vantage point of the business, the customer and employees.
Each business has requirements unique to it. It is hoped you accessed your businesses location needs in some detail in your business plan. In most retail businesses visibility, accessibility, and traffic counts, are important considerations. Other considerations might be convenient parking, cost, lease terms etc. The location also needs to be in a area where the intended customer base shops at. For example; a high end dress shop will not do very well in a middle class neighbor hood. A product distributor might need to locate central to his intended customer base to control delivery cost.
Planning pays:
You start your location planning by identifying who your customers are, their needs, where they are located and how they will locate you. As you go through the research process you will become more clear as to what defines a suitable site. You should develop a list of positive site requirements and a negative list for use when comparing one site to another. Eliminate as much risk as you possibly can of choosing a well suited location and you will increase your chance of having a successful business.
A poor location:
I recently visited a new bar-b-que restaurant near my home, it is located on a FM road that runs through a little town. The location was chosen because the family owned the property with road frontage. They built a rustic, tin roofed building and set up shop. I predict the business will fail for a multitude of reasons, but mostly their demise will be from a mediocre location. A better, and certainly more expensive location on a major hwy two miles away would have been much more conducive to the businesses continued operation. Most business problems can be corrected fairly easily assuming a knowledgeable owner/manger, but a poor location can not be easily, or inexpensively remedied.
A Good loaction; A high-end furniture re-sale consignment shop I frequent is located in a wealthy neighborhood's business district, it is an idea location for this business. The proprietor pays $6,000 a month for a 5900 square foot retail store where the floor space is chopped up into little rooms, as they where smaller shops at one time. The ceilings are to low, there is no store room or freight dock and I could go on and on with the buildings short commings. The owner complains about the landlords lack of maintenance and the locations less then desirable attributes on a regular basis. I asked why they did not move, they said because the location is central to the businesses success and no other suitable location exist in the trade area. This business pays 7% of gross sales for rent, in a not idea building, in a great location. Smart people if you ask me. In a less desirable location they would spend more then that on advertising.
Finding a good location:
In order to locate a desirable location, make a list of your businesses requirements. Ask questions that will lead to a realistic list of expectations and not your personal preferences.
When choosing a location think of what the business needs to have a good chance to succeed, get as many of those requirements filled as possible. It is hard enough to make a business profitable without fighting a poor location that makes the task next to impossible.
Cost:
Before we get into some specifics about finding a good location lets talk cost for a minute or two. Cost of buying or renting is aways a consideration and if your businesses site requirements are not super critical, I suggest looking for afford-ability. Those monthly rent payments come to fast and to often, so the lower the payment the better. On the other hand, if location is critical to your business success, pay the rate and charge accordingly to afford it. Keep in mind your competition has the same problem.
General Considerations:
Area economic strength is important to your success. What is the economic condition of the local area?
What is the average household income in your trade area?
Population growth. Is the population increasing or decreasing? How is that population made up, married? Single? Age groups, income levels, home owners, apartment dwellers, other trends?, etc. This information is available from the U.S. census data office.
Competition; Who is your competition? Where are they located? What type facilities do they have that your customers will expect you to provide? For you retailers, customers tend to shop at the biggest store they can, thinking the bigger stores have a better selection, so keep this in mind when evaluating your competition and potential sites.
Local conditions; Transportation, ingress and egress, taxes rates, zoning issues, availability of needed services and the like?
Neighborhood; What type of neighbor hood or buiness area is conducive to your business model? What are the traffic patterns in the area? Other business in the area and the effect they will have on your business?
Traffic and parking; traffic and visibility are good for business unless there is so much traffic that access is denied. A traffic count is available from the city, county or state highway commissions. You should conduct a traffic survey for any site you are considering
Planned road construction: Is there any planned remodeling of the streets planned during the duration of your lease? Many a business was put out of business by road construction projects. Check with the state highway and local city or county planning departments.
Site specific considerations; going home side of the street is most often preferred. Parking availability. Sign-age considerations, accessibility of competition to locate near your site, building size, building design, future expansion possibilities.
Leasing; leasing is a contractual obligation, committing you to pay the rent for the full lease term. A lease at $3,000 per month for five years is a $180,000 commitment. Because of this, a shorter lease term lease with renewals is best. If you must pay for the finish out and modifications to get a shorter term then do so. Flexibility in the lease terms allows you to cut your losses should the need arise. A ingress, egress clause that reduces your rent by 80% or so in the event your leased business site is not accessible in the normal manner for any reason (to include road construction) can be a life safer if the road is torn up in front of your business.
All leases should be reviewed by your attorney with protecting your interest in mind. Some of the clauses to be checked over are, rent increases and frequency, chattel clauses, late fees, taxes, repairs, sign-age, restrictions, competition restrictions and limitations, deposits, common area maintenance fees, percentage participation clauses, advertising clauses, insurances requirements, and cost pass throughs, sub letting, merchandising limitations, hours of operation clauses, holiday clauses, out door storage, maintenance clauses clauses, to name but a few. A real estate attorneys' review will save you money and or grief.
Adding lease clauses; Your landlord will undoubtedly have a standard lease form. Have your attorney add clauses to protect you and your business. Leases are very large financial commitments and legal documents that need careful evaluation, and protection clauses added for your business. If the landlord is not fair in their dealings with you now, don't expect it later. The larger (financially) a party involved in a lease deal is, the more likely it is they will have an attorney protecting their interest. The smaller financially the party involved in a lease is, the less likely they will use an attorney. It should be the other way around, as the smaller party is less likely to be able to afford any future conflict or financial loss.
Buying vs. leasing; Buying a site needs to be evaluated with considerable care. Some of these considerations are, price, location, terms, amount of cash needed, time to remodel, long term viability, growth potential, parking, ingress, egress, traffic patterns, alternative use potential and so on. Manny a business man has found that the value of their business after twenty or more years in business, is in the real estate. I recommend buying when all else is equal. But you must do what is best for the business after careful evaluation.
Help: Consider any help that might be available to you. Some communities and states have funds for relocation and business development. Visit the local chamber of commerce and ask what assistance they might provide. Visit local government offices, many have business incentives and whole departments set up to aid and assist you. Don't forget the local SBA office. Local collages some times have students who will do site evaluations for class credits.
Professionals are available to assist in site selection. From local real estate agents to professional site evaluation firms.
Good luck with your search.