How to Plan Your Business Location Strategy: 10 Factors to Know
Choosing a business location is one of the key decisions you'll have to make as an entrepreneur. Doing so shouldn't be based on a personal whim but rather on a detailed understanding of your needs and limits. To do this, you need a location strategy.
In this article, we’ll see what is a location strategy, how to pick the right location for your business, and the factors that influence your decision.
What is a location strategy?
Business location strategy is the process of identifying an ideal location based on your company’s needs and objectives. It includes analyzing the factors that influence your operations, profitability, scalability, expenses, etc.
A well-planned location strategy can help you increase your market share, reduce labour and raw material costs, minimize risk, and take advantage of local laws and policies.
“The precept that location is key to the success of a business applies to art, and even to life itself: we thrive or wither depending on how nourishing our environment is.” – Yann Martel
How to pick the right location for your business
Picking the right business location depends greatly on what you want that location to do for you.
Asking the following question can be a great start to conducting your location analysis:
- What is the size of your future shop or office?
- What are your infrastructure requirements? Are you looking for a place to set up shop or to build your own office?
- What’s your budget to set up the new location?
- Do you need to be closer to a particular supplier for raw materials?
Depending on your business, your requirements will vary. Once you've identified your company needs, look at the factors that affect your business location to get a better idea of your options.
Factors influencing business location
Several factors determine how your business functions and sustains itself. These are some of them you should consider before picking your business location:
1. Proximity to target customers
In most cases, it pays to be in a location where there’s a high demand for your product. However, depending on your business type, you can decide whether you need to be near your target customers.
For instance, if you’re planning to start a restaurant, it might be more profitable to be in an urban locality where people eat out frequently. Conversely, if you plan on starting a manufacturing business, being close to your target customers might not be a priority.
Regardless of your business type, your proximity to your customers becomes more significant if:
- Your product life cycle is short
- Your transportation cost is high
- Your products are fragile
- Your products require after-sales services
2. Competitors’ location
Picking a location closer to a competitor can impact your business in many ways. Done wisely, it can even turn out to be a good strategy.
If your products have a competitive advantage, setting up shop near your competitors can work in your favour. Not only can you capture their market share, but also provide your customers with a sense of choice.
Here are the benefits of setting up your business near a competitor:
- A healthy competition will fuel innovation.
- You can leverage your competitors’ marketing strategies for your benefit. Since they have already pulled in customers to the area, you don’t have to spend a lot on advertising yourself.
- Being close to your competitors allows you to strategize better and understand what works and what doesn’t in the market.
- If you happen to build a good relationship with your competitor, you can even collaborate with them.
If you’re afraid that your competitors’ offerings may outperform yours, you may choose other locations that will place you in the centre of the market.
3. Talent acquisition
It’s not just customers and suppliers you need to worry about when picking a location; you also need to consider your recruitment needs.
If you plan to build a team, you need to check the following:
- Are there enough talented workers in the area you can hire?
- Does the location have good transportation and other facilities?
- Will the location help boost your staff’s productivity?
- How far is the location from the nearest residential area?
- Will you be reimbursing your staff’s travel expenses?
4. Operating and other costs
The location of your business will greatly influence the expenses you will have to incur.
Some of those expenses to look out for are:
- Transportation of raw materials
- Product delivery
- Inventory costs
- Parking fees
- Labour costs
- Electricity costs
- Water costs
There are a variety of taxes you would have to pay once you've set up your business. These vary depending on state and location. Moreover, some areas favour particular industries, creating favourable tax conditions. So, it’s essential to consider the same before deciding on the location of your business.
A few of the commonly levied taxes on businesses are:
6. Government incentives
Most young entrepreneurs are constantly on the lookout for funding and support. The good news is that some local and state governments do offer help. This can be in the form of financial incentives, low-interest loans, tax relaxations, and other benefits.
Make sure to research about these before you lock your decision.
Some websites where you can find relevant info are:
7. Government laws and policies
Converse to the last point, there could be several government laws and policies that may restrict or negatively impact your business activities. Make sure to consider these before finalizing your business location.
Some of the aspects you should look into are:
- Licenses and permits
- Labour and employment laws
- Trade barriers
- Building codes
- Environmental regulations
- Advertising regulations
8. Local zoning ordinances
Local authorities have fixed rules and regulations regarding land usage—these laws are called zoning ordinances. Check if your plans of using and modifying the property comply with local laws to avoid running into problems later down the line.
Some locations have laws that deny permits for specific industries or restrict certain business activities. So, verify with the local municipal corporations or similar authorities to ensure you’re allowed to do business in that location.
9. Local community
While opening your business, it’s crucial to consider the impact of the local community on your business.
Asking the below questions might help you:
- Is the community welcoming of small businesses?
- Does your business benefit the community in any way?
- Are the local values compatible with your company’s values?
- Will you be able to foster long-term relationships with the community?
10. Safety and security
Feeling safe and conducting your business without any disturbances is critical.
Enquire about the following while looking for a location:
- Is the crime rate in the area high?
- How well is the policing system enforced?
- Is there a danger of theft or burglary? Will your inventory be secure?
- Is it a safe place for you and your employees?
- Will you need to upgrade the property to safeguard your business?
Choose the right location for your business
Going through a myriad of business location ideas can often cause decision fatigue due to the irreversibility of the action. However, you can increase your chances of success by evaluating your options via extensive research.
Examine the above factors to analyze your compatibility with your desired location and identify potential fits to check if it’s viable. Make sure to take your time to avoid making the wrong investment. You can even consider hiring an advisor or professional to help you with this process.