For many small businesses, business location is an essential component in its eventual success or failure. Site selection can be pivotal in all sorts of businesses, including retail, service, wholesale, and manufacturing efforts. In fact, studies conducted by the Small Business Administration (SBA) and other organizations indicate that poor location is one of the primary causes of business failure in America. Conversely, a good business location can be enormously beneficial to a small firm. As Fred I. Weber Jr. remarked in Locating or Relocating Your Business, "sometimes a business that might otherwise be only marginal makes a good profit because of an excellent location. On the other hand, a poor location can often drag down a good business. It can affect sales adversely and help decrease the company's profit by adding to its cost."
Each of the above-mentioned business types—retail, service, wholesale, and manufacturing—have different site needs that need to be considered when settling upon a location for starting or relocating a business.
RETAIL BUSINESSES The success of retail establishments is often predicated to a large degree on their location. "Real estate professionals are fond of saying that the three most important factors in choosing a business space are location, location, and location," wrote Fred S. Steingold in Legal Guide for Starting and Running a Small Business. "For certain types of retail stores and restaurants, this may be true. For example, a sandwich shop requires a location with a high volume of foot traffic. Or maybe you'll benefit if you're near other businesses that are similar to yours; restaurants often like to locate in a restaurant district."
Since location is so important to most retail operations, small business retailers often have to make significant expenditures to secure a good site on which to operate. Property owners that offer land or buildings or office space for lease or sale in already-thriving retail areas know that they can command a higher price because of the volume and quality of business that the location will bring to the company.
SERVICE BUSINESSES Many service-oriented businesses also need to operate in "high traffic" regions, but there are exceptions to this. Most home-based business owners, for example, package their talents in service-oriented businesses (software development, freelance writing, home improvement, etc.). Others, such as pest control services or landscaping services, secure the majority of their customers through the Yellow Pages, etc., and thus do not need to worry as much about their location (although location can become a problem because of other factors; for example, a service business that has to travel great distances to take care of the majority of its customers might consider relocating closer to its primary customer base). Still other service-oriented businesses, of course, rely to a great degree on their location. Dry cleaners, hair salons, and other businesses cannot afford to locate themselves on the outskirts of a business district. Many of their customers frequent their business precisely because of the convenience of their location; if that benefit dries up, so too do the customers.
WHOLESALE BUSINESSES Whereas the primary consideration for retailers and some service businesses is to locate themselves in high traffic areas—hence the ubiquity of such businesses in shopping centers and malls—the major location concern of wholesalers is to find a site that has good shipping and receiving facilities and close proximity to transportation routes. Zoning laws are also a consideration. Most communities maintain zoning laws that restrict where wholesalers can set up their businesses.
MANUFACTURING BUSINESSES As with wholesalers, businesses engaged in manufacturing usually have limited site location options because of local zoning laws. But manufacturers generally do not lack for options when the time comes to build or relocate a facility. Most communities have any number of sites to choose from. The key is to select the land or building that will be most beneficial to the company in the long run, taking into consideration the company's primary market, the available labor force, transportation factors, availability of raw materials, available buildings or building sites, community attitudes toward the industry, expense, and convenience of access for customers.
Small business have a number of different choices in the realm of site selection. The type of facility most often embraced by retail and many service establishments is the shopping center. The shopping center, which houses a variety of different stores (often including well-known chain stores), can take several different forms, but the best known of these is the mall. These establishments provide their tenants with large numbers of potential customers and professional marketing and maintenance services, but in return, tenants often pay high rent and additional fees (to cover maintenance costs, etc.) Many other small businesses, meanwhile, are located in smaller shopping centers that are sometimes known as strip malls or neighborhood shopping centers. These centers, which rely on a smaller customer base than their mega-mall cousins, are typically anchored by one or two large supermarkets or discount stores. The rest of the stores are usually small retail or service establishments of one type or another. The rent at strip malls is generally much less than it is at major malls, but of course, the level of traffic is generally not as high either. The small business owner who wishes to establish his or her store in a shopping center must carefully weigh the financial advantages and pitfalls of each of these options before moving forward. Other retailers or service businesses prefer to set up their businesses in freestanding locations. Restaurants, for instance, often choose to set up their business in a lone building, attracted by the lower fixed rent that often accompanies such arrangements.
Another facility option for the small business is the business park or office building. Indeed, many professionals (doctors, architects, attorneys) choose this option, attracted by the professional image that such trappings convey and the ability to share maintenance costs with other tenants. Some service businesses also operate from these facilities, especially if their primary clientele are other businesses.
There are myriad factors that need to be evaluated when deciding where to locate a business. Settling on a site that is both convenient and comfortable for the company's primary customers is, of course, vital, but that is only one piece of the site selection puzzle. These considerations include:
Whether starting up a new business or moving an already established one, small business owners are faced with the question of whether to lease or purchase the land and/or facility that they choose as the site for their company. Most small businesses operate under lease arrangements—indeed, many small business owners do not have the necessary capital to buy the facility where they will operate—but some do choose to go the purchase route, swayed by the following advantages:
Of course, there are also factors associated with ownership that either convince small business owners to stick with lease agreements or preclude ownership as a viable option.
An important factor that small business owners need to consider when weighing various business location alternatives is the site's ability to address the company's future needs. "You should keep in mind the danger of putting off relocating because you 'can't afford it now,' " warned Weber. "Some owner-managers find that, as time goes by and their competitive positions worsen, they can afford relocating even less. They learn the hard way that if a company stays too long in a location it can die in that location." Even a company that is performing satisfactorily can benefit from regular reviews of the pros and cons of its location. "What about technological improvements?" wrote Weber. "Have you ever thought that, if you move, you could take advantage of the technological improvements that have come along in your industry since your present facility was built? If your facility has become a competitive liability because of such innovations, moving to another building may be the most economical way to become competitive again."
Most business consultants counsel their clients to do two things to avoid getting stuck with an inadequate business facility and/or location: 1) plan for the future; and 2) pay attention to the tell-tale signs that are often buried in the business's balance sheet. "Facility costs are a normal everyday concern," wrote Wadman Daly in Relocating Your Workplace, "but their relationship to other operating and overhead expenses can alter gradually in ways that, once perceived, suggest a facility change. Rent, operating expense, maintenance, taxes and insurance, etc., should be monitored as a percent of one or more preferred productivity measures to serve as a good indicator of the need for facility change."
Local assistance in selecting a site for a new business can usually be found from a number of sources. These include local utilities, some of which have departments designed to provide help in this area; local Chambers of Commerce; banks and insurance agencies; real estate agents who specialize in commercial and industrial property; and state agencies. More informal networking with members of the local business community can also provide both leads and warnings about various regional properties.
Ady, Robert M. "Discussion: How to Select an Ideal Business Site." New England Economic Review. March-April 1997.
Daly, Wadman. Relocating Your Workplace: A User's Guide to Acquiring and Preparing Business Facilities. Crisp Publications, n.d.
Holmes, Thomas J. "The Location of Industry: Do States' Policies Matter?" Regulation. Winter 2000.
Porter, John. "Nice Place You've Got There." Grocer. April 22, 2000.
Rappoport, James E., Robert F. Cushman, and Karen Daroff, eds. Office Planning and Design Desk Reference. Wiley, 1992.
Rice, Melinda. "Picking the Spot: Firm's Location May Be Most Crucial Decision." Baltimore Business Journal. November 27, 1998.
Schriner, Jim. "Picking Your Neighborhood." Industry Week. July 3, 1995.
Steinberg, Brian. "Green Acres: Why Some Entrepreneurs are Saying 'Goodbye, City Life.' " Entrepreneur. October 1997.
Steingold, Fred S. Legal Guide for Starting and Running a Small Business. 3d ed. Nolo Press, 1997.
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SEE ALSO: Relocation