How to find a good location for your business

If you select the wrong spot for your new venture, sales may be slow due to low foot traffic, high competition, or zoning ordinances that restrict your operating hours. Even if you do everything else right, your business could suffer from this technicality.

The switching costs of moving to a better location can be high when you consider lost deposits, professional movers, and other disruptions. That’s why it’s important to pick the right location the first time. Doing so helps increase your chances of generating sales, and it decreases the risk of having to move later (unless you start expanding).

A step-by-step business location strategy

There are many business location factors that go into this important decision, many of which vary by niche, industry, and geography. As such, there is no one-size-fits-all business location strategy that you can use to find your ideal address.

Below are some key considerations to factor into the selection process when determining how to find a location for a new business.

1. The type and size of your operation

If you are selling an untested product to a new market, you may want to consider shopping for short-term rentals, kiosks, or pop-up shop locations before committing to any long-term leases. This allows you to test locations for criteria such as foot traffic and demand.

If you operate a more established business, or one that already has a presence, look at the best performing times and locations of your current stores to generate a more realistic profile of your ideal location.

2. The location’s history

Steer clear of places that have experienced high lessee turnover. If other businesses were unable to turn a profit at that location, it may not offer good results for your business, either. This is especially true if those failed businesses were in your same niche or vertical.

3. Customer demographics

To succeed in business, you have to know your customers – and know them well:

• If catering to younger shoppers, it may make sense to be in a trendier location, even if rents are a little higher than normal.

• If selling furniture to families, consider areas near new home developments or well-established neighborhoods.

There are no clear-cut guidelines, since every entrepreneur must weigh whatever business location factors are specific to his or her needs. The goal is to choose a spot that reflects the preferences of your target market.

4. Foot traffic and walk-ins

Because most merchants want foot traffic, there is higher overall demand in the most visited parts of town. Paying a premium for this access may be worth it whether you run a restaurant, bar, or boutique – all of which thrive on drop-ins.

For professional services such as financial planners and repair shops, their customers typically arrive with a purpose that requires scheduling an appointment. It may not make sense to focus as heavily on foot traffic. Instead, look for a location where your business will be noticed and can easily be accessed (with parking or nearby public transport).

5. Competition and proximity

Typically, being the only game in town is ideal. Many businesses will choose locations far from their closest competitors to help minimize the loss of sales.

That said, have you ever noticed how Starbucks cafes are always in clusters? The same goes for mattress stores, furniture outlets, and other similarly-themed businesses. This isn’t by accident.

Competing businesses often congregate to capture “spillover” traffic. In fact, there are mathematical proofs¹ from game theory outlining why clusters are sometimes the optimal business location strategy – even if you’re a small player in a crowded field.

Being the only type of business in your town definitely has its pros and cons. Rent might be less expensive on the outskirts, but you’ll possibly miss out on spillover traffic from nearby stores and restaurants. Will having less overhead affect revenue generation? Consider what’s best for your business.

6. Location accessibility

Your business should be as accessible as possible, but accessibility takes many forms, including whether:

• Your location is ADA-compliant and includes sufficient parking for disabled patrons

• There are service roads and loading docks for delivery trucks

• There is sufficient lighting if operating during nighttime hours

• Your location is easily accessible via public transit

This accessibility analysis should also factor in your needs, as well as those of your employees. Remember, your team must commute, and possibly need to park a car or bicycle, just like your customers.

7. Zoning ordinances and restrictions

There’s a reason why nightclubs aren’t in residential areas, or why restaurants only exist in certain parts of town. Local ordinances and zoning laws place restrictions on where these businesses can operate.

Depending on what type of business you run, you may also be subject to more specific restrictions. Be sure to speak with your city’s zoning office before moving forward with a lease.

8. The building’s infrastructure

As a lessee, you usually aren’t responsible for faulty plumbing or bad wiring. The landlord will likely take care of these issues. Regardless, imagine moving into a building that lacks sufficient cellular reception. Or, maybe you rent a space in a large commercial building that closes at 6 p.m. – even though your official hours of operation extend through 9 p.m. These are the types of unwelcome surprises you want to avoid.

Make sure that the location you choose is able to support your operations. It may be worthwhile to speak with previous or neighboring tenants to get a better idea of what you’re about to enter.

What business location factors apply to your situation?

There’s a lot of effort that goes into selecting the right location for your new business. This analysis, however, is worth the investment – especially if you plan on staying open long-term.

Take the time to formulate a winning business location strategy that meets your unique needs, as well as those of future customers.

As a new business owner, we understand there is a lot on your plate. Let Clover help you ease into your new venture. We offer many solutions to help you run your business and take payments. To get started, schedule a consultation with a Clover Business Consultant today.

This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.

1 “Game Theory – The Hotelling Model of Spatial Location,” Tutor2u, 3 February 2014