1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.

Choosing a Location for Your Business

There's more to consider than just cost

By

Business women looking at new office space
AMV Photo/Iconica/Getty Images
One of the basic concepts taught in almost every introductory marketing course is The Four P's: Price, Product, Promotion and Place. "Place" refers generally to distribution, i.e., where your customer evaluates and ultimately receives your product or service. While this may not matter much for people who work virtually, or who run a business that drop-ships from a third party, it's critical for restaurants, retailers, and even many service businesses. Ironically, while "place" is often the most permanent of the four P's, it's also often the most overlooked.

Location is about more than just choosing a building. Perhaps for you, opening your business in your own town, or even your part of town, is a given. But consider the big picture:

  • State - Income taxes and sales taxes vary greatly from state to state, as do regulatory requirements. Is the state you live in friendly to entrepreneurship? To the specific type of business you want to run? Now might be the time to consider a move if it isn't, or possibly to open your business in a nearby state if you live near a state line. The Small Business Survival Index ranks the various U.S. states on how friendly they are to small business.
  • City - Rent and other costs, availability of labor, taxes, regulations and government economic incentives can also vary greatly from city to city, even within the same state. Or maybe a small town is the perfect spot for your business. Entrepreneur Magazine publishes an annual list of the Best U.S. Cities for Small Business. Under 30 CEO also has a list of the best cities for young entrepreneurs.
  • Part of town - What kind of commute is involved? Is the part of town consistent with the image for your business? Rent varies greatly according to location.
  • Location relative to streets, parking, and other businesses - Do you need to be visible and/or easily accessible to pedestrian and automobile traffic? Will being close to businesses that draw a similar clientele help your business? For example, a sporting goods store or health food store might do very well next to a gym.
  • Type of location Do you need office space, retail or warehouse? Retail is generally the most expensive of the three.
There are many factors to consider in choosing the location for your business. While cost is obviously a major consideration, you must also think about your various constituencies. Is your location important to...
  • You? The space has to work for you, or it won't work. Remember, you're the one has to work there every day.
  • Your customers? It also has to work for your customers, or it won't work. No customers = no business.
  • Your employees? This issue may not be as critical at first, especially if you don't have any employees yet. But the ability to attract and keep good employees will be affected by your location.
  • Strategic partners? While this may not seem like a big issue, the reality is that strategic partnerships happen more easily when the partners are local to each other. Why do you think that certain areas become hubs for certain types of business, such as Silicon Valley for the tech industry?
  • Potential investors or buyers? You may not even be thinking about that yet, but potential investors looking at the long-term value of the business will see location as an important factor.
Each of these groups has different concerns about the location:
  • Cost - Most obviously, can you afford it? Also, though, consider whether your customers and employees can afford it. For example, is there free parking, or is it expensive? Will higher rent cause you to charge higher prices to your customers? That's not necessarily a bad thing, but a factor to consider. What about taxes? Income taxes and sales taxes vary greatly from state to state, and if you buy your own property,
  • Convenience - Is it easy to find? Is parking close by? Consider your clients. If you're dealing with pregnant mothers and the elderly, they may have a different concept of "convenient".
  • Safety - This is an increasingly important issue for both customers and employees. Is the parking close by? Well lit? Is there security on the premises?
  • Prestige - Would a downtown address add credibility? Will wealthy clients favor a business in their own neighborhood? Some places even provide virtual offices with prestigious addresses, such as Beverly Hills, Silicon Valley, or Manhattan.
  • Traffic - Retailers and restaurants love it, office workers don't.
  • Facility requirements - Do you have any special needs, such as high power consumption or specialized wiring? Do you need meeting space, but only occasionally? You might consider a shared office suite (often called executive suites) in that case.
  • Zoning - Many cities have very strict zoning requirements. Make sure your business is even allowed there before you sign the lease!

As you can see, a fully informed decision involves a fairly complex matrix of issues. Determine your priorities, keep an open mind about your options, do your research, and get ready to make one of the most important decisions about your business.

  1. About.com
  2. Money
  3. Entrepreneurs
  4. Starting a Business
  5. Choosing a Location for Your Business: What to Consider

©2014 About.com. All rights reserved.