Developing a Location Plan

The importance of the location decision differs depending on the type of product or service provided by the business. For retail outlets location is the key. Service providers such as hair salons and shoe repairs services also largely depend on the location to drive traffic to their stores. Location is also important to manufacturers who need to be in proximity to the suppliers. However, if it is small manufacturing business which does not have to be in proximity to suppliers and which sells its products over the internet than location may be not very important. The costs of securing good locations increased significantly over the last decade. However, the internet allows many businesses to establish proximity to customers at a very low cost.

Factors to consider when selecting a business location

Selection of location is often a once-off decision. Relocation is usually very costly and time consuming but sometimes is necessary if the choice of location was incorrect.

The importance of location differs depending on the type of product or service provided by the business. However, there are number of important factors that should be considered by entrepreneurs when selecting a location for the business. Depending on particular business and situation, each factor may be more or less important but all of them should be considered.

The first factor that should be considered is proximity to customers. The importance of proximity to customers depends on the type of product of service provided by the enterprise. For retail outlets location is the key. Service providers such as hair salons and shoe repairs services also largely depend on the location to drive traffic to their stores. However, if it is small manufacturing business which sells its products only over the internet than proximity to customers is not very important, if important at all.

Site-selection software can be used by businesses to help select a location with good proximity to customers. Such software is relatively sophisticated and allows evaluating such information as demographic information, traffic flow and businesses which are located in the area when choosing a location with good proximity to customers.

Proximity to customers is also a very important consideration when businesses supply product which is very expensive to ship, especially if shipping costs are high compared to the value of the product, such as soft drinks. Such businesses need to be located as near to customers as possible to decrease shipment costs.

An internet presence allows good customer accessibility to many types of businesses and should be considered.

Proximity to employees is also very important. Business need to be located in the area where employees of the right calibre, skills set and education are available. Requirements that business have to employees depends on the type of the business and may include wage rates levels, history of relationships between employees and employers in the area, general labour productivity in the area, certain type of skills and availability of surplus labour which refers to the situation when supply of labour is higher than demand and therefore many workers are searching for a job.

Proximity to suppliers is also can be important consideration. For example, it may be very important for a manufacturing business to be close to the raw materials’ supplier. In this case, the cost of shipment or the need to maintain close relationships may be critical.

Proximity superior transportation facilities: Availability of transportation is also very important. For example, a retail store may require a good highway, roads and public transport services nearby to ensure that customers can access the store. For manufacturing businesses it may be important to ensure that good roads are available to transport its products. When considering cost of the location it is also important to consider whether target customers will be able to afford this location. For example, the cost of parking and transportation to access the business location should be considered.

Cost of te location is also an important factor. Generally, it is better for new businesses to first rent a location. This allows business to refine its understanding of its location needs before purchasing a location as well as saving its available funds for necessary operating expenses.

Leasing also reduces risk as it means businesses will have less debt. Risk rises as the debt of the business increases because businesses can be forced into bankruptcy by lenders if debt obligations in terms of interest and principal payments on debt cannot be met. Since sales and other income sources of the new business are usually uncertain during establishment phase of the business, it is much less risky not to have large debt obligations.

If the leasing option is selected, it is important to ensure the insurance policy is adequate for the business’s needs and it does not expose the business to unnecessary risks due to confusing clauses. It is advisable to have an attorney to review the agreement before signing it.

When considering cost of the location it is also worthwhile to consider taxes. Some areas of the country may offer lower tax rates and this could be very helpful for a new business.

If entrepreneurs have very limited funds, and if type of product or service permits, it may be a good idea to initially locate the business on the internet and operate it from home. This will significantly decrease the operational costs required to start a business.

Facility requirements are also important to consider. Entrepreneurs need to consider if the business has any particular facility requirements such as high power consumption.

Competition is another factor to consider when selecting location. For example, if the business is a coffee shop than selecting a location where there are no other coffee shops are currently located can be advantageous, especially in the start-up phase.

Specifics of the community must be understood. It is important to investigate the community in the locations considered. Entrepreneur can do research at almost no cost by reading local press, watching local television, speaking to other business owners in the area and understanding the background of the area.

Entrepreneur’s preferences are another factor that must be considered when choosing a location for the business. Many entrepreneurs give this factor the most attention. Entrepreneur may wish to locate business in the area in which he/she is a resident of and which he or she knows well.

This can have many advantages such as better understanding of the target customers, including their needs and preferences. Other advantages include established relationship that can be utilized for the benefit of the business. An example of this could be a relationship with the local bank manager which can be helpful in obtaining a loan. Another example is the relationship with other business owners which can be helpful in obtaining general advice and guidance.

Entrepreneur’s family and friends may be the first customers of the business and may recommend businesses to other people, which would make it easier to jump start sales of the business.

Entrepreneurs also may choose the location they are comfortable with due to the specific life style that they wish to maintain. For example, certain individuals may prefer to live near the ocean and would want to locate the business in such an area.

However, it is vital to keep in mind all other important factors that must be considered when choosing a location and do not allow just personal requirements to be a sole reason for locating in the specific area.

Entrepreneurs may even consider locating at home. This has a number of advantages such as lower costs, saving time that could be spent on the commute and ability to spend more time with the family. Entrepreneurs, however, need to consider if it will be possible to maintain a professional image by being located at home. Establishing special and non-special boundaries may help to achieve this. It also needs to be considered if the city in which entrepreneur resides allows to locate this particular type of business at home in this area and if there are any restrictions on activities of the business that apply in case.

Prestige of the location will be more important for some types of businesses. For example, if business targets an elite customer than prestige of the location is an important consideration.

Entrepreneurs should also consider sharing facilities with other business. Business incubators offer facilities for the new businesses. Such facilities usually allow new business to become operational right away. Business incubators generally provide businesses with building space, clerical assistance, general equipment such as phones and fax machines and management advice. Such choice will result in lowering operational costs and therefore decrease the risk of business failure due to insufficient funds.

Generally such business incubators are sponsored by governments or universities and their purpose is to help new businesses get established before such businesses become strong enough to move to their own locations. The main benefit of business incubators is management advice that they provide. This could be especially beneficial to inexperienced entrepreneurs.

Other considerations when choosing a location is economic and (business) environmental factors. This refers to such factors as tax structure, legal requirements, crime levels and weather. Safety is an important consideration when choosing a location. Therefore, location at a high crime rate area may not be very suitable, especially if this is a type of business where customers will need to visit the location.

Some areas of the country may offer location incentives such as enterprise zones. Enterprise zones are established to entice businesses to locate in the areas which are economically deprived and in need of job creating by offering businesses lower taxes.

However, many cities also place certain restrictions on businesses. For example, it is common for cities to have zoning requirements which place restrictions on businesses which operate from home. This is a problem especially over the last few years since more and more businesses consider locating at home and home based business are no longer considered to be “second grade” businesses in the eyes of both consumers, business partners and owners.


Growth of a Small Business

Entrepreneurs have different preferences towards the growth of their businesses. Some desire rapid growth, others pursue manageable and reasonable growth while others prefer not to grow their businesses at all but only to maintain the current size of the business.

Growth of a small business can be incredibly challenging if it is not planned for. One of the reasons for this is due to the fact that growth usually requires additional financing which has to be obtained before the additional profits appear as cash inflows.

This growth problem is further exacerbated due to the difficulty of obtaining external financing. Business may need additional financing to hire more personnel to handle increased sales and to buy extra inventory and raw materials. Therefore, the situation may occur where a rapidly growing business is profitable but has cash-flow problems. This is referred to as a “growth trap”.


Innovation and Small Business

Why do innovation and small business go together? Consider this: small businesses account for 95% of all radical innovations and for half of all innovations. Inventions such as the personal computer originated from a small business. Therefore, innovation and small business are often very much aligned and this trend is expected to continue into the future.

After all, innovation and small business have to be associated because, in many cases, one can only break into established markets and compete with the recognized giants by introducing innovative solutions to customers’ needs.

Interestingly, large organizations usually focus on improving existing solutions rather than on inventing new solutions. As Scott Anthony, co-author of the book “Seeing What’s Next: Using Theories of Innovation to Predict Industry Change”, and partner at Innosight, a Watertown (Massachusetts) Innovation consulting firm, mentioned, “The thing that’s so tricky is that everything an established company is trained to do – watch your markets carefully, listen to your best customers, innovate to meet their needs – oftentimes causes them to miss some of these disruptive transformation trends”. Moreover, large organizations are often very bureaucratic, which slows down or even kills innovation efforts of employees.

The factors above further contribute to the competitive power of innovation in small business. Small business should embrace its less bureaucratic environments and enhance its innovation efforts. However, innovation efforts of small business have to be designed carefully. The following factors should be considered within the context of innovation and small business:

Six factors to consider

1 – Entrepreneurs need to ensure that adequate financing is available or is accessible for the entire duration of the innovation effort.

2 – A new and innovative product or service must add real value to customer. Innovation can only be a successful effort if there is a demand for the new solution.

3 – It is best to choose an area in which an entrepreneur has personal experience.

4 – It is best to concentrate on products and services which are currently not available or underserved. This will allow entrepreneurs to achieve more rapid growth as well as to have less competition, at least initially.

5 – If innovative products and services is the focus of the business, than continuous innovation should be given a priority.

6 – It is advisable for innovation to be of a type that allows for further products and services to be developed based on the initial innovation.

Innovation and small business success

Due to widespread globalization and advancement in technologies, innovation is accessible to small businesses in a way that was never possible before. Innovation and small business should go together, it is the only way to establish a strong foothold in the market while competing with recognized giants.

There has never been a better time for small businesses to grow and prosper. Think about the opportunities that technology and globalization offers to small business. For example, the internet has made it possible to access markets anywhere in the world, at a very low cost. The only thing that small businesses need is a solution to customers’ needs that is new and in demand. Small business needs innovation. Therefore, innovation and small business success are also very much aligned.

The following article may be of interest to you if you would like to understand this better: “All Shook Up – You can’t control disruptive innovations, but you can learn to predict them–and to react to them in a positive way.”