Choosing a Business Location

By George Leposky

The success of every enterprise depends at least in part on its location. As you begin a business, choose a location with exquisite care. You’ll work there for years -- or move later at great expense.

That choice depends a great deal on the kind of business you want to open. For a retail business in demand practically everywhere, such as a gas station or hardware store, the size of the community you choose depends primarily on your lifestyle desires.

For a more specialized retail business, such as selling computer or art supplies, and for many sophisticated businesses, such as writing custom software or running an advertising agency, a market big enough to sustain the business may exist only in a big city. Even with modems and fax machines linking businesses around the world, many clients and customers still prefer to deal locally.

Within an urban area, choose the right business district. Here are some considerations affecting that choice for retailers and many service providers:

• Proximity to your customers and competitors. A gas station or fast-food restaurant will do better by itself. Furniture stores, car dealers, and home-appliance stores tend to cluster together to facilitate comparison shopping.

• Proximity to complementary businesses. Restaurants and ice-cream parlors tend to thrive near movie theaters, and clothing stores near department stores.

• The cost of the premises. A posh boutique probably can afford a high-priced location, but a supermarket or auto dealer requires thousands of square feet of space and must locate in a less expensive area.

For a service business that doesn’t draw customers to the workplace, select a location for your own convenience and access to your clientele. The office of a pest-control firm, for example, can thrive in a warehouse district where space to store chemicals and park vehicles is available at a relatively modest cost.

On the other hand, a professional or personal service you offer to customers on your own premises needs easy access and high visibility. Professionals such as accountants, attorneys, chiropractors, optometrists, and physicians will do best in their own building, on a street where passers-by can see their "shingle." Second-best for these professionals is a storefront in a strip shopping center. Worst is office space concealed within a large, impersonal professional building.

Businesses serving a drive-in clientele, such as fast-food restaurants, convenience food markets, dry cleaners, and banks, look for ample parking and a vehicular traffic pattern enabling customers to enter and leave the premises easily.

If you're a wholesaler, locate near the retailers who are your customers, in a facility with the necessary storage space for your goods. Calculate whether your savings on transportation will offset the higher cost of a central-city location, or whether your savings on outlying premises will offset added transportation costs.

In a manufacturing business, the key question is: Are you better off near your source of supply or near your markets? Choose your location to optimize the combined costs of production and distribution. For example, a bottle manufacturer would rather ship finished bottles than tons of silica sand, but a jeweler has no need to locate next to a gold, silver, or diamond mine. He receives his supplies already processed, in compact form, and can work close to his customers.

Other factors affecting location for all kinds of businesses include:

• Quality-of-life issues such as climate, cultural opportunities, municipal services, recreational facilities, and schools.

• Local economic and labor considerations. If your market is the area where you locate, pick one with ample purchasing power to buy your goods and/or services. Indicators of purchasing power include employment and unemployment statistics, total family income, bank deposits, per-capita retail sales, and housing prices. The local Chamber of Commerce should be able to supply this information. If your market is distant from your base of operations, consider locating in an economically-depressed area where you may benefit from tax advantages and an ample labor supply.

• Labor considerations. An ample labor supply is just one aspect to consider. Others include the availability of workers with the skills you need, prevailing wages and fringe benefits, and the extent of union activity. In states where right-to-work laws outlaw compulsory union membership, unions tend to be weaker, so you stand a better chance of operating a business there without union intervention.

• Energy costs. Rates for electricity and natural gas vary widely around the nation. Ask the trade association serving your type of business for comparative rates. Then ask the regulating authority in each state you're considering for the rates applicable to your type of business. Remember that some states have more than one company supplying each commodity, at different rates in different parts of the state.

• Taxes and service fees. Your business and its employees must pay local and state property, sales, and income taxes. Ask whether the local taxing authority will give you a reduced rate as an incentive to locate in that community. Also consider not only the size of the tax bite, but what you'll get for the money. Some communities levy lower taxes but charge fees for municipal services, such as garbage pickup or use of parks and beaches, which a high-tax community may provide without additional charge.

• Local zoning, subdivision, and pollution-control regulations. From a zoning standpoint, the rule of thumb is, "Go where you're wanted." Avoid neighbors who may mobilize to fight you in a costly rezoning battle. Subdivision regulations deal with sewerage, water, roads, and other public facilities for which you may be required to pay. Local and state pollution regulators may require you to install costly equipment and follow involved procedures to eliminate or clean up toxic wastes. Before you look for a location with less stringent pollution rules, consider that you, too, must live with the wastes your business creates. Weigh the expense against the enhanced quality-of-life benefits of clean air and water.

• Assistance with financing. If your business can qualify for government-assisted financing, look for communities that offer publicly-sponsored industrial-development bonds at a below-market interest rate.

George Leposky is editor of Ampersand Communications, a news-features syndicate based in Miami, Florida.

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