Location, location, location is the mantra of the real estate business. But finding the exact right location for a business is often a case of easier said than done.
“What a good location is depends on the nature of the enterprise and its chosen target market,” Eduardo A. Morato explained in A Trilogy on Entrepreneurship. Determine "exactly who the target customers are, their demographic characteristics, psychographic profile, motivational drivers, taste preferences and usage sophistication levels.”
During a recent Money Talk interview on KCAA radio, Statebook International president Calandra Cruikshank explained that entrepreneurs must suss out "where’s the best, most sustainable community for my business, according to where’s the best workforce and infrastructure, taxes and utility costs.”
Cruikshank, whose company provides entrepreneurs and economic development agencies access to comprehensive location information, encourages business owners to do their homework well before committing to a site. Whereas large businesses can pay for site-selection consultants, “small- and medium-sized companies would never hire a site selection consultant because they cannot afford it,” she said.
But entrepreneurs need not fret since many site-selection decisions rely on online information -- something an entrepreneur with a tight budget can afford, she added.
“Choosing a business location is perhaps the most important decision a small business owner or startup will make, so it requires precise planning and research," according to the Small Business Administration website, which calls for "looking at demographics, assessing your supply chain, scoping the competition, staying on budget, understanding state laws and taxes.”
The following are five tips to consider in the search for a business location:
1. Consider the surrounding community.
When hunting for a business site, entrepreneurs should consider whether a given community is actively seeking new companies. Contact the local economic development agency to learn about possible incentives, which could include financial support for tenant improvements, municipal programs giving preference to area businesses or local tax and planning department waivers.
Economic development consultant Justin Erickson advised entrepreneurs to lock down incentives prior to signing a lease or making a commitment as “communities sometimes do not follow through with promised incentives once a company has signed a lease or bought a building.”
2. Beware of problem locations.
Some locations are great. Others are miserable. Consider the revolving restaurant site, a spot that's home to a new restaurant every six months: Each new owner believes that he or she has the secret sauce to make the site work only to call it quits after a short stretch. The fact is, not all locations are the same. Regardless of the product, service or business plan, some locations are simply bad for business.
“If you find yourself trying to decide between a better location at a higher rent versus a lesser location for a lower rent my advice is go for the better location,” said commercial lease consultant Dale Willerton. “When I’m consulting to tenants and doing site selection my job isn’t to find the cheapest location -- it’s to select a site that will help the tenant maximize sales.”
3. Identify target customers.
Entrepreneurs must carefully consider their target clients when developing a business plan. Then they should seek locations abundant with this type and ensure that these areas can provide employees with the needed skills.
“Estimate the market size and the customers’ purchasing power in the primary area,” Morato said. “Driving or walking time to the location should be studied. Also, examine the vehicular and traffic flow and take note of physical barriers and traffic limitations or detours."
4. Pay a fair price.
The ideal location will rarely be one with the lowest price tag. Entrepreneurs should be realistic and ready to pay for a good site. An ideal location will contribute toward the enterprise's success. A poor one will result in rapid closure. Good locations are not cheap. A business plan should include a realistic projection of the costs involved.
“It may cost us more to do business here, and there are definitely some handicaps to doing business here, but there is a tremendous upside to being near your customers,” said Paul Beach, an executive who runs a company that makes lithium-ion batteries in California.
5. Know the competition.
Very rarely will a business be the only game in town. Entrepreneurs must assess the competition and be certain there's enough business to go around. If a given community is already saturated with similar businesses, consider a new location. Those determined to compete in a tight market must offer a product or service sufficiently game changing to draw enough business to make the operation viable.
“Identifying the competition in a market helps determine if your business idea is feasible,” according to the Iowa State University website. “A competitive assessment also directs how a product/service should be positioned.” This analysis will determine if the company can gain a competitive edge by offering something the existing competition doesn't.