Choosing a location for your business involves various proximity issues related to customers, suppliers, employees, parking and nearby businesses and competitors. The character of the community and environmental issues may also have an impact on your business facility choice.
When choosing a facility for your business, just as important as the facility itself are the logistics of its location. Basically, the majority of businesses rely on some combination of three groups—customers, suppliers, and employees—for their success. Locating your business where these groups can get to you easily is vital. The proximity of competitors may also impact certain types of businesses. And while perhaps not as obvious, facilities with environmental or community character issues can be poor choices for the location of your business because of the negative impact on your bottom line.
Ease of access to customers
When you're ready to select the community in which to locate your business, you need to make sure that the chosen community provides ready access to enough potential customers to support your business. What constitutes "ready access" varies tremendously based on the type of business.
Example
A stand selling smoothies is extremely dependent on the number of people actually passing by. Conversely, a manufacturer that sells only through wholesalers is not dependent on foot traffic.
Owners of retail and service businesses (other than those that operate by mail, telephone, or online orders) usually need to locate their businesses primarily based on customer volume and convenience. This is why many of these businesses choose a location that puts them in the midst of heavy car or pedestrian traffic.
Tip
If your business depends in large part on foot traffic or drive-in customers, even the side of the street you are on can make a difference. Depending on the type of business you operate, if you are on a street where most of the commuter traffic goes one way in the morning and the other way in the late afternoon, you'll probably do better with a location that's on the side of the street that best suits your business. For example, if a large part of your business involves the sale of breakfast items such as coffee, rolls, and the like to be consumed at, or on the way to, work.
Wholesalers and manufacturing businesses must also be concerned about being close to customers, but for them, being close to customers is more a question of transportation costs and speed. This is why their preferred facility often is one that is large, obtainable at low rent, and serviced by inexpensive means of transportation. These facilities tend to be in the older, more industrial areas of established cities, near airports, or in outlying areas.
For mail-order companies, particularly those that don't ship heavy products, close enough to customers can well mean anywhere in the country. This also holds true for many types of creative work, such as writing, editing, consulting, and computer software design.
Reliance on suppliers
Unless your business provides purely services to customers, you depend on suppliers (distributors, wholesalers, manufacturers, etc.) to provide you with the items you need to create and market your product. Thus, all things being equal, it's usually better from the point of view of delivery and price to be close to your important suppliers.
If the source of the materials that you need to make your products is distant and you aren't well served by transportation facilities, the shipping costs that you will incur, and have to pass along to your customers in some form, may make it too expensive for you to compete with businesses that can get their supplies more cheaply. Also, more distant suppliers can mean more delays in delivery of supplies.
Your facility's street location and access to highways and other modes of transportation can also affect how quickly you can receive shipments from suppliers.
Availability of employees
For many small businesses, the ability to attract and retain qualified employees can be critical to success. Because of this, you should carefully consider the availability of qualified employment prospects within a half-hour drive of your location.
If employee costs figure to be a major portion of your total business costs (and especially if you are considering different states to locate your facility), you will do well to investigate state and local work rules, required employee benefits, and workers' compensation rules.
Business facility parking and community character issues
Depending on the type of business your operate and whether you have employees, adequate parking can be a major concern. Just think about how many times you have given up when there was no parking to be found near the business you wanted to visit? As a business owner, you face diminishing profits with each minute a potential customer can't find somewhere to park.
Mixed-use neighborhoods (for example, residential and retail), can present their own set of parking issues. Therefore, if you are considering a facility located in a mixed-use neighborhood, you should check out whether the facility's parking lot is used by local residents without permission. Why should you care? If it is, you may find yourself in the position of generating ill-will with neighbors, some of whom may be your customers, if you move to reassert control over your lot.
Think ahead
If you have concerns about a possible unauthorized parking problem, as a part of a purchase or lease agreement you should have the seller or landlord state in writing who, if anyone, has been allowed to park in the lot for other than business purposes, and whether there has been a problem with unauthorized parking in the lot.
If you run a manufacturing or wholesale business, is parking an issue for you? Manufacturing and wholesale businesses don't usually need to accommodate customer parking, but often have their own parking lots for use by employees. So even if you don't need customer parking, parking is a concern if you have employees.
One out-of-the box way to solve this problem is when businesses strike deals with other businesses, or with local governmental bodies, to meet their parking needs at a reasonable cost.
Example
Ashley owns an event planning business that needed to solve a critical employee parking problem. By entering an agreement with a local park district, Ashley's employees were permitted to park their cars in a nearby parking lot owned by the park district, which had adjoining basketball and tennis courts. In exchange for this, Ashley, at the expense of her business, paved and maintained the lot, which would continue to be open for public use. Ashley's business was able to get additional parking without buying or leasing land, while the park district had its lot expanded and paved, at no expense to it. Adding to the benefit of this arrangement is that the business's parking needs were generally limited to weekday business hours, while the park district patrons normally used the parking facilities after work or on weekends. Therefore, this joint use agreement for the parking lot benefited both parties, while disadvantaging neither.
Character of the community
You can get a good sense of the community surrounding your target business location by looking at basic data from the Bureau of the Census. For starters, demographic information can tell you the numbers and types of people who live in a certain geographic area, classified by age and sex. It can also tell you the number of households, the average household size, and the average, median, and per capita income levels in a given area.
Consider the quality of community services. When you are thinking about buying a personal residence, the quality of the community's services (such as police and fire protection, education, and health care) is something that you may give a lot of thought to. Business owners should give the same level of attention to this issue when considering where to locate their business facility.
It's not to difficult to conjure up a list of bad things that could happen to the facility itself, and the people in it, if the facility is in an area that does not receive good police and fire protection and that does not have access to emergency health care. Added to the human costs are dollars-and-cents costs for legal liability and attorneys' fees, theft, and higher insurance costs.
What might not be as apparent are some of the less direct effects of community services such as education, health care, and welfare services. A quality local school system can give your business an available pool of well-educated potential employees. Just as important, local community colleges and high schools can be resources that your business can draw on to encourage employees (possibly through tuition reimbursement programs) to improve and enhance their job-related skills.
How do you evaluate the community surrounding your target business location? There are several methods you can use and factors to consider.
Community rules and access to utilities
When deciding in which community to locate your facility while you'll always have to check the zoning classification and rules that apply to a specific parcel of property in a community, it is possible that the community will forbid your type of business anywhere within its boundaries.
Additionally, a community's zoning laws, and other rules relating to businesses (such as licensing fees and rules restricting time or manner of business operation), can provide a glimpse of the community's attitude toward businesses similar to yours. Looking into these zoning rules and business taxes can give you two valuable pieces of information:
- an estimation of at least one part of the economic costs of locating within that community
- an idea about how likely it is that the zoning authorities will act to give you a variance if needed
What can you do if you find what you think to be an ideal facility for your business, but you can't use it as you intend because this use would be forbidden under current zoning rules or private land use restrictions? You can enter into the rental or purchase agreement for the facility, but insist on a contract provision that lets you back out of the deal unless you are able to obtain a zoning variance or judicial relief from a private land use agreement within a specified time.
Tip
Because of the importance of this transaction to your business and the legal technicalities that are often present with a real estate property transfer, we suggest that you obtain competent legal advice about the content of such a contingency provision.
Access to credit. The availability of credit can be an important asset to your business. Traditionally, financial institutions have been more likely to grant loans to small businesses that are within the same community or neighborhood as they are. This means that if you choose to locate your facility in an area that is not well serviced by several financial institutions, you may have difficulty obtaining credit at a reasonable rate.
Access to utilities. No matter what kind of business you are in and what type of facility you envision, the efficiency of your business operation will be affected for the worse if utilities such as power, heating fuel, telephones, and water are not reliably available at reasonable prices. Once you have moved into a particular business facility, you normally will not have a choice of what company will furnish power, heating fuel, and water. Companies that deliver these utilities usually have monopolies within given geographic areas.
If you have not yet chosen your facility, however, the question of utility costs is something that should be factored into your decision. It's possible that locating your facility across the county, town, or even the street (where utilities are provided at lower rates by another company) may save significant power and water costs.
Work Smart
You might want to consider having an emergency power generator at your facility. Although such a system probably wouldn't be sufficient to keep your whole business operating, it might be useful in some situations. For example, if severe damage to business equipment or inventory (such as computers or perishable goods) could be avoided by maintaining temperature control in a small area, having such a back-up generator might avoid costly losses.
If power outages would mean big losses to your business, you might also be wise to consider adding power interruption coverage to your business insurance policy.
How do nearby businesses affect your business?
Another community feature to consider when choosing a facility is the appearance of surrounding businesses and neighbors. What effect can these have on how your business is perceived?
Any business that sells its products or services to customers at the business facility has a strong interest not only in the general character of the neighborhood, but in the kind and appearance of nearby businesses and neighbors. This consideration is less important to businesses that don't have as many on-the-premises contacts (such as wholesale and manufacturing companies).
However, just as a business should never completely disregard the appearance of its facility, no matter what type of business it is, it should not completely overlook the effect that the appearance of surrounding businesses and neighbors may have on how it is perceived.
If your business has on-the-premises customers, strictly from an appearance standpoint, what would you like your customers to see as they approach your facility? Usually, you'll want your facility and surrounding buildings to roughly fit in with each other visually. Within some settings, however, a bit of tasteful architectural difference from other buildings may make your building more visible.
Your proximity to magnet stores (large stores that attract a large number of customers) can also be important for attracting customers. By deciding where to locate your business, you in effect get to pick the appearance of nearby businesses and other neighborhood buildings, and may be able to "piggy-back" on a neighbor's ability to draw customers to the area. If you operate a retail or service business that depends on customers coming to your premises, you may want to position your facility on an access route to the magnet store. By doing so, you can greatly increase the number of potential customers who walk or drive by your facility.
Warning
Proximity to a magnet store can be a double-edged sword for a small business. Although any business that attracts large numbers of customers to an area can serve as a magnet for nearby stores (large grocery and department stores are common ones), whether the magnet will benefit your store will depend on whether it competes with your business, and whether its operation and target clientele are compatible with yours.
If you have determined that you will benefit from a nearby magnet store, there are other things that you can do — other than just being there — that can enhance these benefits:
- Adjust your store hours. You may wish to consider adjusting your store hours to coincide with that of the magnet. If possible, think about opening your store a little earlier and closing it a little later than the magnet. This way, your store could benefit from customers arriving before the magnet's opening, as well those who would walk or drive by your store shortly after the magnet's closing. Depending on your business, the magnet store's employees might be among your early and late customers.
- Coordinate your promotional and sale activities. You may also want to coordinate your promotional and sale activities to those sponsored by the magnet. As a small business owner, you will normally have the flexibility to make on-the-spot marketing decisions. For instance, if you see that the anchor store in the local shopping center is holding a major sales event starting on Monday, you can go in over the weekend and set up your sale. If the magnet is not a competitor, you may be able to get advanced notice of these events, and thereby have time to advertise your sale.
Are any of the surrounding businesses competitors with your business? Ironically, the lack of any competition may be more of a negative sign than too much competition!
Nearby competitors and environmental concerns
For some kinds of businesses, such as wholesalers or mail order retailers, the physical closeness of competitors really doesn't matter much. Their customers usually don't go to the facility to place an order, so they'll never see a competitor located directly across the street. If this describes your business situation, you may be able to ignore the question of nearby competitors.
In certain instances, competitors may "cluster" in close proximity for the betterment of all. This may be done where several stores selling unique, but similar, items cluster so as to draw more customers than any one store could hope to. Art, jewelry, and high-fashion clothing stores are examples of retailers that may find it advantageous to locate close to business competitors for this reason. Competitors may also cluster to cut expenses.
Example
Two heavy construction companies are located next to each other on a private gravel road that is some distance to the nearest paved country road. Each uses the gravel road to haul their heavy machinery to the country road. By sharing the considerable costs necessary to maintain the gravel road, each of the two companies is able to reduce its cost of doing business, without giving a competitive advantage to its neighbor.
Most retail and service businesses, however, would find the absence of nearby competitors to be a great advantage. But before you are tempted to rush into a facility based on the fact that there are no nearby competitors, consider these points:
- The location may not support the kind of business that you wish to operate there.
- Competitors who are not located in the area may do business there.
- Your business might benefit from being close to other businesses, either to draw in more customers or to share expenses.
Environmental issues
If you purchase or operate a facility site that is polluted with hazardous wastes, you may be forced to clean them up — and this could be enormously expensive. Although you would not be without defenses to such a government claim, merely proving that you in no way were the cause of the pollution is not enough. You must have had no knowledge of the condition, and you must have made a good faith effort to uncover any hazardous condition. Thus, it is vitally important that you avoid facility sites that may have been environmentally damaged by hazardous wastes.
Making sure that you won't be saddled with the expense of cleaning up another's environmental mess is easier said than done. At a minimum, before you sign a rental or sales contract for the property, you should ask your attorney about the steps that he or she will take on your behalf to ensure that you won't get hit with such a liability. One such step is to require the seller or landlord to disclose in the contract whether there were prior uses that may have had an environmental impact and any federal and state environmental notices or investigations relating to the site. Your attorney can also advise you about whether an environmental inspection of the site is advisable.