I Don’t Know Where I Should Start My Business… Now What?
Choosing a successful location for your new business requires many considerations, including affordability, accessibility, and competition. Unfortunately, not only are finances tight when starting a business, but there’s often tremendous pressure to get the ball rolling and start bringing in sales. As tempting as it may be to sign the first available lease in your price range, it’s crucial to remember that your business will likely be in the same location for years—and your location will affect nearly every aspect of your business. Below are 7 key steps small businesses can take when looking for an office, storefront, or other physical work site.
How to Choose a Business Location
1. Form Your Business Where You Do Business
When people ask about the best state to start a business, common responses are states with low or no business taxes (like Wyoming or Nevada) or business-friendly laws (like Delaware). However, small businesses—particularly brick and mortar companies—tend to fare better forming in their home state. Why? Odds are this is where they’ll be conducting business.
Companies form in one state but are legally required to register in any additional state they do business in (a process called “foreign qualification”). Now, every state varies a bit on what is considered “doing business,” but if you have a physical presence (like an office or warehouse) or employees in a state, you’re usually considered to be doing business there.
Imagine you form your business in Nevada because they have no corporate or personal income tax. However, you conduct all your business in your home state. You would need to pay all of Nevada’s steep formation and maintenance fees (and hire a registered agent since you don’t live there). On top of this, you would have to apply for foreign qualification in your home state and pay any recurring local fees. And after all that, it’s highly unlikely you’d avoid your home state’s taxes entirely—you reside there, make sales there, and work there. So, if you’re starting a small local business, forming in another state may not be worth the headache.
2. Research Zoning Restrictions and Ordinances
Zoning restrictions are common, especially for manufacturing and other industrial processes that create noise, odors or pollution. Businesses that may create excessive traffic (like a stadium or convention center) usually have zoning restrictions as well. If your industry is considered potentially harmful to youth—like alcohol or weapons sales—you’ll have to navigate restrictions preventing you from setting up shop near schools or other places with large number of minors, such as parks or libraries.
Politically contentious businesses may also inspire new ordinances, protests or other restrictions. For instance, Greenfield, Massachusetts has successfully protested against chains and big box retailers that might hurt small businesses. And when the state of Washington legalized recreational marijuana sales, some cities (such as Pomeroy and Othello) responded with local ordinances prohibiting these businesses. The takeaway is to always check for restrictions—and even if there are no current restrictions, it would be wise to tune into local attitudes toward your particular industry before opening your doors.
3. Stay Close to Resources (and Ensure Availability)
What does your business actually need to function? For instance, if your business manufactures, processes or retails physical products, is it possible to find a location near suppliers, a distribution center or an order fulfillment center? The more removed you are from your supplies or products, the longer delivery times will be, and the more shipping and transport will cost.
Also, not every location has the basic infrastructure or even legal permissions for everything your business might need. For instance, if you’re opening a gym, you may need to install showers—which would likely require extensive plumbing and permits. Opening a coding camp? You’ll need a location that can support your internet connectivity requirements. Essentially, if you’ll need building permits for extensive construction or depend heavily on third-party utilities, make absolutely sure these will be available before settling on a location.
4. Go to Where the Customers Are
For customer-facing businesses, you ideally want to bring your business to wherever your customers are. For instance, if you sell golf accessories, it would make sense to locate your business near a golf course or a high-end shopping area that might attract customers who can afford this kind of recreational activity. It’s always a much tougher sell to convince customers to travel far or go out of their way to seek out a product or service. Choosing a location near complementary businesses is especially important for retail and service industries that typically benefit from foot traffic.
On the flip side, while it’s a good idea to consider the customers already in an area, you want to be sure your business isn’t entirely dependent on the customer traffic of other businesses. If you’re selling lawnmowers in suburbia, odds are that lawns in the area won’t disappear overnight. However, if you set up your tutoring service across the street from a local college, imagine what would happen to your customer base if the college closed or moved locations.
5. Don’t Necessarily Avoid Competing Businesses
Your gut reaction may be to avoid areas with lots of competing businesses. After all, businesses with similar products and services can easily end up hurting themselves with price wars and other desperate measures to win over a small client pool. In some cases, however, it may be beneficial to be surrounded by competitors.
Ever notice how there tends to be five or six furniture stores on a single street? Furniture is a product that people typically want to see (and poke and squish) before purchasing. As a result, customers might be drawn to a neighborhood where they can quickly and easily comparison shop before making a decision—instead of driving an hour out of town for a single store. Businesses that easily reach capacity (like bars and restaurants) or that benefit from lots of foot traffic (like retail stores) also often do better in clusters.
6. Check Your Location’s Safety and Accessibility
The safety and functionality of your space is essential for customers and employees. Finding out the real issues with an area takes some digging though. You’ll want to hire safety inspectors to check the property for any concerns (much like you would when buying a home).
You’ll also need to spend some time in the area. Try to pay attention to any inconveniences when you visit the location yourself. Is it hard to find parking? Maybe it’s hard to find the building—can you see it from the street? Is there a good place for signage? Is the parking lot well lit? What’s that weird smell? Talking to business neighbors can also give you insight into problems. For instance, is the street slow to get plowed in the winter? Does the area suffer from break-ins, vandalism or other crimes?
7. Research the History of Your Business Location
You don’t want to have the business location “where all those murders happened.” Look into the history of any building or location you use. Places have reputations, and even if you have a great new business, a dark or even just unsuccessful history can be damaging. For instance, if your business is the most recent in a long string of failed businesses, customers may be wary, assuming you’ll disappear as quickly as those who came before. Ask your realtor and potential neighbors about previous owners or tenants, and follow up with an online search of the address.
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