How to Choose the Right Business Location: 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 to understand how you can choose the right location.

In this article, we’ll see how to pick the right location for your business, and the factors that influence your decision.

“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.

How to pick right location

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

Find where you target audience is

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
If you choose a location that’s far from your suppliers and vendors, it could result in potential service delays. So make sure to pick a location that’s comfortable for both you and your dealers.

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.

Clustering is the phenomenon where companies set up stores near each other to form business clusters—these are areas concentrated with particular businesses.

3. Talent acquisition

Find a right Talent

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
  • Labor costs
  • Electricity costs
  • Water costs
Keeping your expenses to the minimum will ensure a sense of financial security in case your business is not able to generate enough revenue in the first few years.

5. Taxes

Try cutting your taxes

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 favor particular industries, creating favorable 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

Find a Government Incentive program

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 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

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:

Setting up your business in a location where there’s a higher community engagement can help your brand grow, build a reputation, generate more sales, and increase customer loyalty.

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

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.

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Ayush Jalan
Ayush Jalan
Ayush is a writer with an academic background in business and marketing. Being a tech-enthusiast, he likes to keep a sharp eye on the latest tech gadgets and innovations. When he's not working, you can find him writing poetry, gaming, playing the ukulele, catching up with friends, and indulging in creative philosophies.