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Factors to Consider When Choosing a Business Location

Tillie Demetriou
5 Oct. 2022

Starting a business takes a ton of work. You will likely spend months on tasks like writing a business plan, securing financing, and getting your legal documents in order. However, the business owner that chooses a poor location for the business begins to trade at a serious disadvantage.

Where you start your business affects your earning potential, market impact, operating expenses, and much more. Similarly, your location can restrict how you trade and even jeopardize your business altogether if it prevents you from generating enough revenue. 

Let’s look at what to consider when choosing a business location and how to find the best place to set up shop.

Seven factors to consider when choosing a business location

1. Geographic location

Firstly, you need to start your business in an area that positions you in close proximity to your target market. According to Access Development, 93% of consumers travel 20 minutes or less for everyday purchases[1]. This trend remains true for urban and rural consumers, although rural shoppers will travel longer distances for specific goods.

Suffice to say, your business will benefit from being inside this 20-minute commuter window for as much of your market as possible. But how do you calculate this? 

As you browse locations, refer to your business plan and visit your market analysis section. Based on your findings, choose a part of town that holds your largest consumer base. Set this as your target hub, and use a tool like Google Maps to ensure all prospective commercial buildings are within 20 minutes of this market. 

Remember: urban shoppers will likely walk or take public transportation to reach your business. Make sure to measure by this standard when planning your 20-minute window.

2. Operational needs

Next, you will want to look for an office or building that matches your business model. While you can still run a convenience store in an old restaurant, it’s best to find a space with a design based on a retailer's needs. Alternatively, you can renovate a building to suit your operational needs, but this is expensive and not worth it unless you will make enough savings on other costs to counteract this expenditure. 

Some core aspects to look at include:

  • Kitchen: If you will prepare meals, does the kitchen have enough space to hold your appliances, ingredients, and team?
  • Floorplan: Does the building layout match your operational style? Does it have enough office and staff rooms, facilities, and the necessary utility access?
  • Size: Will you have enough space to display your products or seat guests?
  • Storage: How much inventory will you keep in the stockroom? Can you easily organise and navigate this space when full?

3. Rent cost

Once you narrow down your selection of locations, you will want to compare costs. If buildings are located near one another, your lease will likely be near the same price. 

According to Hartman Income REIT, most businesses should pay 10% or less of gross income for rent[2]. For example, if you generate $20,000 revenue each month, your rent should ideally be $2,000 or less.

Rent will likely be your largest bill each month, so getting a good deal on rent will be a decisive factor in your business’s success. You will need to compare value when factoring in rent costs. Ask yourself these questions to see if the rent price is worth it:

  • Is parking included?
  • Are any utilities included?
  • Does the property have any energy-saving features?
  • Will one space cost more or less to heat and cool than another?

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4. Security

Some businesses need more protection than others. A jewellery store might need a large, safe, and high-tech alarm system, while a small restaurant may simply need a sturdy lock. 

As you compare locations, see what existing security features are in place. Furthermore, ask the property owner if you can install security cameras, add security gates, or upgrade the property in any other way to make it suitably safe. 

Likewise, evaluate the overall safety of the area. Some neighbourhoods have higher crime rates than others. If doing business in these areas, make sure you take the proper precautions to prevent theft or property damage. And if you have a type of business that is prone to theft, you may want to consider another area.

5. Competition

Should you open your store near a competitor? Common sense might say no, but you actually can benefit from selling near similar businesses. 

Why is this?

Consumers like having choices. They also like convenience when they shop. This is why malls and shopping centres are so popular among retailers. 

Think about the typical shopping centre. There are dozens of retailers selling similar products, yet the majority are profitable. Why is this? 

Generally, these stores benefit from the large consumer demand in the area. Shoppers know the location has plenty of choices, so all stores benefit from the high foot traffic. If these stores were alone on the side of the road, how many consumers would visit for a t-shirt or pair of jeans? 

This might not be true for all kinds of business. For instance, an area's demand for convenience stores will not necessarily rise with increased competition. So consider both positive and negative elements of competition when assessing a possible location.

6. Growth potential

Look at your one-year and five-year goals. Do you plan to grow your business or even open more locations?

You want to choose a business location that allows you to expand your service as needed. A restaurant may eventually want to offer outdoor dining or build a bustling takeaway service. Similarly, a store may want to offer a more diverse inventory.

If a sudden spike in demand will necessitate moving locations, it might be a good idea to choose the large location first. While this may be more expensive than choosing a small location, it can help you save money in the long run.

Growth can be helped or hindered by all kinds of factors besides the building itself. The size of the town or city may influence the potential to open more branches that expand your customer base, while the ability to open and market online services can make your base city irrelevant to growth.

7. Accessibility

How easily can customers visit your business? The more accessible it is, the more appealing it can be to shoppers. Customers hate to struggle to reach the business, which can extend the travel time unnecessarily and make the experience stressful.

Some common accessibility concerns include:

  • Car park and street parking availability
  • Distance to major highways
  • Distance to public transportation
  • Convenient parking for delivery trucks

Knowing there’s a nearby car park or bus stop puts potential customers at ease as they don’t have to figure out how they will reach the business. Without this convenience, they may choose to go to an easier-to-reach competitor.

Don’t forget about your point of sale

The latest POS systems save businesses time and money by helping staff and management do more tasks in less time, allowing them to focus on customer service and making sales.

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