How to choose the right location for your business
Read time: 5 minutes
The commercial building you choose will have a big impact on your business. Ideally, its size, layout, location and appearance should all enhance your operations while respecting zoning and environmental regulations.
Commercial buildings come in a wide variety of shapes, locations and prices, so you have to know what your needs are and how much you can afford to pay. If you've worked on a business plan, you probably know the amount you can spend on rent or a mortgage, utilities and taxes. A cash-flow analysis will help you determine whether you can afford to purchase a commercial property or if renting is your only viable option.
Renting may allow you to keep more of your working capital for business operations. Still, don't forget to take future rent increases into account. When you own your property, you know what your monthly mortgage payments will be and you are building equity for your business. Be sure to weigh out your options when deciding to buy or lease you commercial space.
It's always a good idea to seek the advice of an independent commercial real estate advisor who can help you set criteria for choosing the right building. This advisor should know the area and be familiar with zoning regulations and any potential issues concerning the building, its location or uses to which it may be put.
In the meantime, here are five tips to help guide your thinking when searching for the right location for your business.
1. Adapt your selection to the needs of your business
If you're a retailer, you probably want to make sure there's ample parking and pedestrian traffic as well as attractive decor. Situating your business close to a magnet or "anchor" store can provide you with lots of walk-by customers. If you sell high-end clothing, for example, it's probably best to avoid discount malls and instead locate your business close to other high-end retailers such as shoe stores or jewelers.
Location and decor are less important to the success of a small wholesale or manufacturing operation, but you will have to comply with zoning regulations that stipulate what types of activity are allowed where. You should also consider the availability of qualified employees within a half-hour commute of where you are considering buying.
For personal, professional or creative services, you may require a series of closed offices in pleasant surroundings with high-speed networking and easy access to public transit. The ability to attract and retain qualified employees can be critical to success of such businesses, so a building in a central, easily accessible location can give you a strategic advantage.
When considering a loading dock, for instance, ask yourself: Is it well situated? Does it require repair? Are there more than one in the facility?
2. Does it require modification?
If you've found a suitable building in a good location, consider what it will take to make it just right. The question then becomes, "Who will pay?"
If you're renting premises that require modification, you'll have to negotiate with the owner. Make sure you have a contract specifying what needs to be done, with clear deadlines and penalties for not completing the work on time. These provisions need to be written into your lease.
If you want to buy, use an accredited inspection company to evaluate the building for defects and the entire property for environmental contamination. Defects can be points for negotiation with the seller—or signs of future headaches best avoided altogether.
Not all changes are within the power of an owner to complete. There may be zoning or heritage regulations that require renovations to be approved by a local board. Even a minor change, like inserting a shipping door into an old brick façade, can require municipal approval. This can take time, and there's no guarantee the changes requested will be allowed.
3. Consider local taxes and infrastructure
Taxes vary between municipalities, with some towns offering preferential rates in the hopes of attracting businesses. Your commercial real estate agent should know what the taxes will be, as well as the infrastructure and utilities—including Internet access, garbage pickup, roads, electricity and natural gas—that are available at the sites you're considering.
4. Allow for future growth
It's great to have room to expand. But paying for extra space that might come in handy at some time in the future might not be the best use of your working capital. Before making an investment in extra space, you should be reasonably sure you'll need it within a relatively short period of time. Your business plan and advisors can help determine what you can afford.
5. Separate your needs from your wants
It's easy to become overwhelmed with the features and options available to you. Once you've looked around and seen what's available, make a "must-have" list of the things your business truly needs. Then make a wish list of features it would be nice to have, but which are not absolutely essential.
Buildings that lack all the must-have criteria should be struck off your list, so it's best to keep the must-have list short: If it's too long, no building will ever qualify. Remaining buildings should be ranked according to how well they meet the requirements of your must-have list.
A simple scoring system can help guide your choice, with each feature rated from 1 (poor) to 10 (excellent). Each point on your list can then be weighted to reflect the relative importance of that feature. A building's reception area may rate a 9, for example, but the overall importance of a reception area to your business might rate only a 2. Multiply these numbers (9 x 2, in this case), do likewise for every feature and add up the results. After you've gone through this exercise for each building you're considering, the three or four with the highest scores should all be carefully considered before you make a final choice.