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10 Things to Consider When Choosing Your Small Business Location

May 3, 2023

Choosing the right location for your small business can mean the difference between success and failure. Whether you’re launching a new venture, relocating or expanding, selecting the right site can impact everything from sales and revenue to brand perception and customer loyalty. With so many variables to consider, it can be overwhelming for small business owners to know where to start. Jim Bieri, founder of Stokas Bieri Real Estate, and Ashley Casey, vice president of tenant advisory for TSCG in Atlanta, explore factors to keep in mind so small business owners can make informed decisions and set their enterprises up for long-term success.

1. Understand the demographics of your targeted location.

Demographics play a crucial role in site selection. Simply put, you want to be in “areas with a high concentration of your target base,” Bieri said. If you were opening a toy store, for instance, you’d want to look for areas with a high number of families with young children. When looking at sites, consider each location’s population size and growth, as an area with a growing population may offer more opportunities for expansion. Also look at age and income in the area, which are indicators of consumer spending habits and purchasing power, as well as education and occupation, which provide insight into the type of customers you can expect and what their needs might be.

You can find out a lot of demographic info about an area by working with a broker. If you want to dive into research on your own first, look at U.S. Census Bureau data or consult online services like Esri and Claritas that provide demographic data, consumer insights and segmentation analysis.

2. Consider what sort of location you want to be in and where your target customer likes to shop.

Especially, as a first-time business owner, it helps to have spillover traffic. “You need to put yourself in a position where there are other people coming to that location for other reasons,” Bieri said. ICSC breaks down the different types of shopping center locations. Superregional malls “have the most volume [of people visiting] but have the highest barrier to entry in terms of cost,” Bieri said. “While you’re going to see more traffic, you might get lost.” Grocery-anchored centers, he said, are often “a great place to get started because there’s a lot of everyday traffic there.” And while he sees opportunity for space on downtown streets, he worries a bit about customer flow with the advent of remote work.

Again, the most important thing to consider is where your customer typically likes to shop.

Are they going into malls? Are they looking to get all their errands and shopping done at one time so it’s helpful to be at a convenience-oriented center? Is it important for them to be at place where they can get in and out quickly?

Most important, do not assume that if you open a store, customers simply will find you. You need to locate where they are. “The extent that you understand where your customer lives — it gives you a big heads up,” Bieri said. “I tell clients all the time: Don’t try to attract [customers] to someplace they’re not.”

If you’re not sure whether a site is a fit, you can ask landlords about opening up a temporary shop, kiosk or pop-up, Bieri said. “It’s a good way to test out the market and product.”

3. Look for an easily accessible and highly visible location.

Experienced entrepreneurs know that the success of a small business often comes down to “location, location, location.” And the best locations, especially for first-time small business owners, are places that are “easily accessible and centrally located, with a high-traffic area,” Casey explained. It takes a while to garner customer loyalty, so when you start out, “you want to make it as easy for the customer to get into the store as possible,” she said.

What a “good location” means in a practical sense, Casey explained, is one that has high visibility so people know you’re there; ample parking because if a customer has to wait for a spot, they’re likely to go somewhere else; and proximity to other businesses.

Also think about what real estate professionals call ingress and egress, i.e., how you enter a property and how you leave it. You don’t want any unnecessary hindrances to getting to your business. “If there’s a large median that goes for a mile down the road, it might not be the best location for you if people need to turn into your business,” Casey said. Traffic patterns should also be considered. For example, if you’re opening a coffee shop, you might want to look for a location with slow-moving traffic that will make it easier for customers to stop and park.

Once people know you, they might make more concessions, but in the beginning especially, Casey reiterated, “you need the convenience factor for customers to come in and make your place their favorite spot.”

4. Know your budget.

The first question any landlord is going to ask you is: “What’s your budget?” Casey said. Your budget should take into account your monthly rent and what you’re willing and capable to spend upfront on improvements. To come up with a budget and to understand whether lease terms are reasonable, understand what your projected income and expenses will be, she said. In addition to monthly rent, you likely also will be responsible for things like utilities, insurance and maintenance. Casey advised that 5% to 10% of sales is a good place to be in terms of occupancy costs, which include rent, common area maintenance and taxes.

A key is not to get so attached to a site that you ignore the hard financials. “A lot of folks, when they’re looking especially at an early location — they get enamored with the location and they forget that you’re getting in[to] a contract that has serious ramifications,” Bieri said. When looking at sites, be flexible and consider different options.

5. Understand your timeline.

“It typically takes six months once you sign a lease to open,” Bieri explained. “Most people look at me with disbelief when I say that.” But when you consider the time it takes to get permits, finish up construction and hire staff, time can creep. An understanding of timelines can help you make informed decisions about the type of space and location that will meet your needs both now and into the future.

6. Research the properties you’re interested in.

To determine whether a location is a good fit, “do your homework,” Bieri said. And if a deal seems too good to be true, it probably is. Homework means visiting a location on different days and at different times to get a sense of traffic patterns and what sorts of customers are visiting. It also means talking to other shop owners in the vicinity. “In my opinion, the most important question a retailer can ask is: ‘Who are my neighbors? And how do they do?’” Bieri said. When you talk with other owners, sales managers and associates, ask them about foot traffic, what challenges they’ve faced and what they’re paying in rent. Casey admitted that money and sales questions can “be a touchy subject, but it doesn’t hurt to at least ask.” And you’d be surprised, she added, about how forthcoming some sales associates can be.

7. Understand who the landlord is.

Your relationship with a landlord is a bit like a marriage; you are bound together under legally binding contracts. Before you sign anything, “understand their reputation,” Casey said. Specifically, it’s helpful to know how they treat their tenants, whether they are responsive to requests and with repairs and how flexible they are with lease terms. As Ashley said, a landlord with a good reputation is more likely to be fair and reasonable, which can help ensure a positive and productive tenant-landlord reputation.

Start by reading reviews from previous and current tenants, which often can be found on the landlord’s website or third-party review sites. You also can reach out to other business owners in the area to see if they have any experience with the landlord or property manager. And brokers have a good sense of the reputation of local owners.

8. Consider your space requirements.

Think about the amount of space needed to operate effectively and efficiently and what a preferred layout looks like. “You need to make sure that the actual infrastructure of the unit you’re looking for makes sense for the business you’re trying to start,” Casey said. A mistake first-time retailers sometimes make is not accounting for space needed for inventory storage.

Some questions as you tour a location: Will you have access to storage space? Is it easily accessible? Would you need to leave a customer by themselves on the floor to get something if they needed it? Is the space easy to navigate for customers and employees? Will this space accommodate growth and my future needs? It helps to take pictures of the space so you can go back and study them afterward.

9. Determine where your competitors are located.

Knowing your competitors’ locations can help. If the market you’re looking into is already saturated with competitors, it might be challenging to stand out and attract customers, Bieri said.

But the calculations aren’t always straightforward. Sometimes customers like it when similar stores are nearby because it saves them multiple trips. And sometimes people travel to places specifically for a purpose, such as a day visiting craft breweries, Casey said. So if you own a craft brewery, “you might not want to locate right next to a popular one but it could helpful to be a few miles away.” Bieri noted: “The interesting thing about competition is that some people want to be right next to the competition and some don’t.” Either way, know where they’re located and make decisions from that starting point.

10. Hire professionals.

Expertise matters when it comes to finding and securing the best location. Brokers, for instance, “have been in the markets for years and years,” said Casey. “They really understand the growth potential in neighborhoods, the direction of the neighborhood, the history of an area and plans for development. They’re also going to have relationships with the landlords, which means they’ll know things that likely, you as a small business owner wouldn’t know, just because you’re not in the weeds every day.” Brokers also can help with negotiations. “They know the verbiage and language that you need to look out for,” Casey said.

Just as important is to hire an experienced real estate attorney for lease negotiations. “You’re signing a long-term transaction that you’re investing a lot of money in, and there’s a lot of stuff in these leases that you don’t have any clue about,” Bieri said. Retail leases, Casey added, are “almost always going to be on the landlord’s lease form, meaning it’s beneficial to the landlord, but attorneys can make sure that the terms are beneficial for both the landlord, and you, as the retail tenant.”

Hire professionals who have expertise in commercial real estate. “Don’t hire someone just because this guy did your brother’s house,” Bieri said. “You want to work with people who’ve actually done the work, who have taken people that have no retail stores and got them open.”

While there are some places to cut corners, professionals are not one of them. If you want the best results for your small business, you need to hire the best experts. Take the time, both Bieri and Casey said, to get to know them.

By Rebecca Meiser

Contributor, Commerce + Communities Today and Small Business Center

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