When it comes to starting a business, you may think the only option is to start it in your current home-base. As it turns out, however, there’s more to consider than where you currently live. Depending on your business’s products and services, industry, and needs, the ideal location to start up will vary. Before committing to a location, you’ll need to consider both the financial implications and the geographic pros and cons of a location.
Cost Impacts of Business Locations
Everyone has heard the rumor that starting a business can cost an arm and a leg. Locating a business is no different. Choosing any particular location can minimize the cost on your business or drive your costs sky-high, so it’s important to know these four major cost impacts of any given location:
Real Estate Costs
Real estate costs are the most obvious ones you’ll face when choosing a location. If your business requires a physical space, or even if your team requires its own office space, you will have to pay rent or buy a location. Your costs will vary from state to stay, city to city, or even street to street.
When prioritizing real estate, you should consider whether customers will interact with your physical space, whether the location will foster your team’s performance, and whether you’ll be able to build a business there.
Applicable Minimum Wage
Although there is a federally established minimum wage, many states and some cities have a minimum wage that is higher. The more you are required to pay in wages, the higher your expenses will be. Keep this in mind when choosing where to start and hire your first employees.
Taxes apply to any given location differently. They vary from state to state and city to city, so you’ll need to account for this when choosing your location.
If your business will be operating in multiple states, or even if you’ll be doing business outside of your home state, this will have additional implications for your taxes. In addition to your headquarters, some states require that you register and pay taxes there.
Government Economic Incentives
The federal government and certain states provide extra incentives to help foster small business in specific locations. These include access to loans or tax incentives, so they can have significant impacts on your company’s cash flow.
Economic Development Agencies are the best organizations to find these types of incentives. With services like financial assistance, site selection assistance, and human resource support, these incentives could entice you to veer away from you home-base.
Geographic Considerations of Business Locations
While a location can minimize the cost of starting a business, the there’s more to consider when it comes to where to locate a business. Your business has specific needs, from labor to suppliers. Knowing these needs and how you’ll gain access to them is an important piece of choosing the right location.
Proximity to Suppliers
If your business relies on third party suppliers, like food for your restaurant or glassware for your food & bee business, you should already be looking into where you’ll get the right items. The higher the importance of these supplies, the more you should prioritize the ease of receiving them.
Because delivery takes both time and money, being close to the right suppliers can have major impacts on your ability to do business. (If you have to bring parts of your product from abroad, locate close to a port or airport.) This will improve your production process help you compete.
Proximity to Skilled Labor
It may be hard to imagine when you’re first starting out, but your small business will need to hire. For certain businesses, your employees may need a specific skillset or education. Being close to a location with those types of workers will make it easier to find talent without creating an end for them to relocate.
It’s not enough to know that this skillset exists in your location now. You should make every effort to guarantee that the type of employees you need will be there when you’re ready to hire. Consider population trends: are your ideal employees moving in or out of the area? If your business is starting in a developing area, you may have enough potential employer in the near future to grow. However, certain neighborhoods or cities can turn employees away and cause hiring problems when the right time comes.
Competition for Employees
If certain skills in your industry are in high demand, you’ll not only be competing for customers; you’ll also be competing for employees. This is another factor that can be highly dependent on your location.
If you are a young company, attracting, hiring, and retaining the right employees can be difficult. Position your company and explain why you provide a better place to work. High competition could increase your expenditures in salaries and employee benefits. If your business could thrive in a less competitive area and get all the same benefits, you should evaluate this option.
Proximity to Customers
Will your customers be coming into your store, restaurant or office? Will you be visiting them? Or will you be providing an entirely virtual experience?
Placing your business near your customers could decrease your marketing costs and cost of acquisition. The easier it is for your customers to find you, the more likely it is that they will come across your great product and become a loyal customer. If on-site traffic to your business is important to get off the ground, consider food and vehicle traffic, neighborhood demographics, and other traffic generators in the area.
Proximity to Competitors
Counter to what you may think, locating your small business near competition is not an inherently bad idea. If your product or service is better than your neighbor’s, being near each other can have certain benefits.
Let’s assume your competitor is moderately successful: they’ve chosen a well-suited location and have put in the effort to attract customers. When your competitor’s loyal customers visit, they may also take an interest in your business, driving extra traffic for both businesses. Certain locations often become known as a “go-to” for a specific market, and that’s when your new business will benefit.
With so many factors to consider, it’s clear that using your current home-base as a location for your new business may not always be the best choice. Entrepreneurs and entrepreneurs-in-the-making should be willing to relocate if it will drive the success of their business.