As I mentioned in my article 7 Steps to Follow When Starting a Business, location is the most important aspect to consider when starting (or even expanding) your business. You have to think carefully about where you should place your business. If you don’t think it through and you place your business in the wrong area, then you will most likely lose out on a lot of potential customers, a strong workforce, or even go bankrupt.
As having a background in city planning, I’m amazed on the locations that some businesses decide to build or rent out. I’ve seen businesses located in the middle of nowhere, behind densely packed trees, and even hiding behind other businesses. I ask myself, “Why would they place a business there? How can anyone see that? What were they thinking?!” I’ve asked quite a few of these business owners as to why they chose that specific lot, and they would often tell me that they did it to save money. Then I ask them how business is going, and they usually tell me, “Well, business is slow.” You want to know why? Nobody even knows where you are! You don’t even have a website! Refer to my other article, Get Your Business Noticed Online for ways on how you can get customers to your store through online referrals.
It’s not worth saving money and placing your store where no one will see it! Would it be a good idea to place a donut shop off a street which no one knows even exists? No! Would it be wise to spend a bit more money by placing a donut shop off a major street where everyone can see it? You bet! You get a ton of free impressions by placing a shop off a major road! The heavier the traffic and the easier it is to turn into and exit your store, the better! Below is a list that you should consider before you either locate or relocate your business!
Zoning Regulations and Building Permits
You will need to go to city hall and ask for building permits to build anything these days. You will first need to have the proper zoning in order to build your business. You can’t build or rent out a property for commercial use that is already zoned as residential. You can ask the city to rezone a current plot of land, however, but expect a fight.
The best thing that you can do is check with the city planning department or city clerk. They will let you know what and where you can build. Don’t be afraid to ask too many questions. They can get irritated all they want with you, but they are not the ones that will pay a fine if you do something wrong. You can check your city for zoning maps and bylaws to see what the city allows businesses to build. For example, some towns will not allow you to build more than 6 stories tall or allow you to build near wetlands.
Expect to step into city hall frequently! You are going to go through a lot of paperwork for applications, building permits, construction documents, expected occupancy, and other documents before the city will give you the green light. You will probably have to attend a planning board meeting or two as well. If all goes well, then expect a visit from the city building inspector (or conservation agent and other inspectors) to check your lot. A good idea is to check your city’s website for zoning regulations and building permits to get an idea of what you need to do to get the building inspectors to inspect your lot and to see how much the fees are.
Taxes and Hidden Fees
The government loves to tax business! Check with your city and the state for their income tax, sales tax, property tax rates, and other fees that are associated with owning a business. Some cities and states offer new businesses lower tax rates (or they might even offer no taxes) for a certain amount of time in order to attract businesses to their city. If you are a big enough company, then you could negotiate with the city to lower your taxes to get your business in. You could also ask to get a tax reduction by paying to repave public roads and sidewalks that connect your business.
Population Density, Travel Time, and WMC
You obviously want to place your business where there are more people, because more people = more potential customers, right? However, it’s not that simple! If you are just looking at a city’s population size and not taking into consideration its population density, then you are missing a crucial part of information! You can calculate a city’s population density, which is the average number of individuals living within a certain space, by dividing the population by the size of the area.
population density = number of people/land area
For example, Massachusetts has a population of almost 7 million, and it’s the 3rd most densely populated state with 860 people living in one square mile. Texas, on the other hand, has a much higher population of almost 27 million, but it has a much lower population density of only 100 people per square mile.
It might seem like a good idea to place a business somewhere in Texas because it has a higher population, however, you will have more potential customers living within one square mile of your store in Massachusetts than you would in Texas, but that’s just the state average. You can apply the same concept with cities, towns, and hobbit shires as well.
Not every square mile of either Boston or Texas has that many people living there. That’s why you should also consider calculating the weighted mean center (wmc). The weighted mean center is the geographic center of a set of points as adjusted for the influence of a value associated with each point. This means that you are taking nearby population sizes and figuring out which specific area offers the most potential customers.
For example, if you are an insurance company that only insures individuals in Massachusetts, then you should take the population size of where you are either currently servicing or planning on servicing your customers and see which location is best suited to provide your services for as many customers as possible. This can be done by knowing each city’s population size, averaging them out, and then placing the weighted mean center where there is a higher population/population density. An easy way to do this is to hire someone that has access to a mapping system such as Geographic Information System (GIS).
Are most of your customers in Boston, Springfield, or New Bedford? If most of your customers are living in Boston, then you should locate your business (or headquarters) closer to Boston, because it will not only service more customers, but it will also be more convenient for the majority of your customers to travel to.
Why is calculating population density and the weighted mean center is important? The answer is travel time! According to Bright Local, an average consumer will travel 17 minutes to reach a local business. If you’re still unsure where you should locate your business, then you should take into consideration the average travel time (17 minutes) or travel distance that a customer will drive to reach your business. The travel distance can be calculated by:
travel distance = speed limit (mph)/distance (miles)
So all you have to do is determine the weighted mean center by finding out where either most of your current or future consumers are by factoring in population density and your consumer’s average travel time (or at least the distance and/or time that they are willing to travel), and you can figure out the general area in which to build your business! Or you can hire someone, such as a GIS company, to do this for you! Who said math isn’t fun?
It’s a good idea to check for safety when you build a home, and the same rule applies when you want to build a business. If crime rate is high, expect to be robbed. If you build a business in a nasty neighborhood, then don’t be cheap on security. If you’re unsure about the neighborhood, then contact the police department for crime rates in the area. The police are pretty good with knowing which neighborhoods are safe. You could also go around and ask the neighborhood for their opinion.
Wages and Labor Market
Will you be able to afford to pay your employees a minimum wage of $5.15 in Wyoming, twice that in Washington, D.C., or somewhere in between? The same goes for salary. Expect to pay higher salaries in states that pay higher minimum wages. You can check the U.S. Department of Labor for minimum wages by each state.
You should consider what the labor market is. Does the community have enough workers for your company? Do they need to be educated? What ages will you hire? How long will their commute be? Are the nearest towns located 45 minutes away, and how will they reach you? Do they need to travel on a dirt road or can they use a major highway? As always, the U.S. Department of Labor is a great source at finding the workforce that you are looking for. You can call them at 1-202-691-5200 for any questions regarding wages and the labor market.
Visibility, Logistics, and Transportation Costs
A key component to location planning is visibility. You should place your business where a lot of people can see your business from the road. About 90% of Americans drive, and that means placing your business off a major road is perfect to get your business noticed by potential customers. You can’t beat free advertising!
If you are planning on building warehouses, or if you need to get shipments from suppliers, then you should consider placing your business as close to these supply depots as possible. It’s a lot cheaper on gas to bring in shipments when your warehouse is close to your business. You should also consider how much it will cost to transport goods between your warehouses, your business, and your customers. That’s logistics for you!
Another reason why you should consider building near a highway or major route is transportation costs. It’s cheaper and more efficient for trucks to get off the highway and travel a mile down city roads than having them travel through busy and narrow city roads, which usually burns more fuel. Truckers also hate having to navigate around bridges, which isn’t a problem while driving on the highway. A good idea is to use Google Maps or MapQuest and use their get directions tool to see how far and how much fuel your shipments will cost from different locations to see which the cheapest and fastest route is.
Competition, Brand Image, and Future Growth
A little competition can be a good thing as it usually leads to innovation. However, too much competition can destroy any business, especially a small business that is just starting out. If you’re opening up a restaurant next to one of Chef Gordon Ramsay’s restaurants, then you might have a problem competing with a well known business. If you don’t mind a challenge, then you better make it a really good restaurant. The food and drinks better taste great, and the atmosphere better be unbelievable. Never be cheap on curb appeal and the environment within your store! People like things that look good!
Getting your brand out there can be a pain in the dark side. You should invest in something that catches people’s eyes such as a large sign or neon light, or a logo that is appealing to customers. Whatever you choose to catch people’s eyes, the important thing is to be consistent! If you make social media pages, put up fliers or posters, send out coupons in the mail, etc., then you should use the same brand! People should look at your brand and immediately know which company you are!
Future growth is another idea that you should familiarize yourself with. When your business grows, will there be enough room to grow? Is there enough space to make additions or upgrades to your building? Will you be able to increase the parking lot from 30 spaces to 100 if need be? Can you place more tables in your restaurant or add a bigger kitchen when you get too busy? You should always plan for the future, even if you don’t think it will happen.
Let’s Hear From You!
What do you think the most important/least important factor is before choosing a location to open up a business? Which is the most complicated? How many business owners do you think either consider or don’t consider any, if not all, of these different factors? Can you think of a business that went bankrupt because they located their business in a bad location? Do you know of any businesses that are successful because they chose the right location? I’ve personally seen a business go bankrupt because they located their business in a place where no one could see them just to save a little money. I’ve also seen a lot of businesses grow because they chose the perfect location after spending a lot of money, which is one of the reasons why some people say, “You have to spend money to make money.”