Locality

Introduction

Choosing the right location for a business is a crucial decision that can significantly impact its success. It can affect everything from accessibility and visibility to its potential market and competition. Companies will set themselves up for success and maximize their chances of achieving their goals by carefully considering their location options and choosing the best location.

For example, a retail store in a busy shopping district is more likely to attract customers than one in a remote area with little foot traffic. Similarly, a manufacturing company near major transportation hubs is more likely to efficiently transport its products than one located in a remote area with limited transportation options.

Factors to consider when choosing a location

Demographics

Understanding the local population can provide valuable insights into two important aspects of the business—the potential market for the business's products or services and its workforce requirements.

Demographic characteristics like age, gender, income, and education level can determine the potential market in a location as well as the availability of talent.

A business targeting young, tech-savvy consumers will fare better at a location near a college or university with a large population of young people. It will also have a ready pool of talent to recruit from when expanding.

Accessibility and Transportation

Accessibility and transportation can impact the ability of customers and employees to reach the company. Businesses located in easily accessible areas and well-connected to major transportation routes are more likely to succeed than those in remote or hard-to-reach areas.

For example, a restaurant located near a major highway or public transportation hub is more likely to attract customers than one in a remote area with limited transportation options.

Similarly, a manufacturing company located near a port or airport is more likely to distribute its products to customers efficiently than one located in an area with limited access to transportation infrastructure.

Access to ample, convenient, well-maintained, and adequately lighted parking is also essential for customers, employees, and suppliers. Limited parking options can be a major turnoff for visitors even though the company is located in a busy urban area. Businesses that observe their proposed facility at various times and days to see how the demand for parking fluctuates are more likely to make a better decision.

Zoning, Permits, and Regulations

Zoning refers to the laws and regulations governing land use in a particular area. These laws determine the types of businesses allowed to operate in a given area and the permitted uses. For example, some areas may be zoned for residential use only, while others may be for commercial or industrial use. Companies need to research the zoning laws where they plan to locate their business to ensure they comply with the law.

Depending on the company's business type, they may need to obtain permits from the local government to operate legally. These permits may include things like a business license, a building permit, or a zoning permit. Obtaining such permits will often come at a fee. Businesses need to factor this fee into their decision-making.

Regulations typically pertain to specific businesses and the area in which the company is located. For example, A restaurant must comply with food safety regulations, while a factory must comply with industrial safety regulations. Businesses are often inspected for compliance with relevant laws by the appropriate regulatory body. A company that does not observe the stipulated regulations may be fined or, even worse, shut down by the regulator.

After researching the zoning laws, permits, and regulations that apply to the business, the next step is to consider the potential costs and challenges the company may face in complying with them. If the business requires specific permits that are difficult to obtain, this could impact the timeline for opening the business. And if the business is subject to strict regulations, this could impact the company's cost.

Cost and availability of Real Estate

The cost of real estate can have a major impact on a business's bottom line. It can affect the amount of money the company has available to invest in other areas. One key consideration under the cost of real estate is the rental or purchase price of the property. Prices can vary widely depending on the location and type of property, so it is essential to compare the costs of different properties in the area.

In some cases, it may be more cost-effective to rent a property rather than purchase it. In other cases, buying a property may be more cost-effective in the long run.

Another factor to consider is the property taxes and other fees that may be associated with the property.

Finally, the availability of real estate in the area can be a significant factor for businesses looking to expand or needing a particular property to operate. For example, a company that requires a large warehouse for manufacturing may need help finding a suitable property in an area with a limited supply of industrial real estate.

Evaluating different real estate options

Here are five steps businesses can take to compare and evaluate different real estate options include:

1. Determine the business's needs and goals: This involves defining the business's current and future requirements regarding location, size, growth plans, target market, and other relevant factors that will impact the decision-making process.

2. Define criteria for evaluating real estate options: After determining the business's needs and goals, the next step is identifying criteria for assessing real estate options. This step covers factors such as demographics, proximity to transportation, zoning regulations, building quality, and availability of amenities such as parking, access to utilities, and security.

3. Evaluate each real estate option: This will involve conducting site visits, reviewing market research, and engaging with real estate agents to gather relevant information.

4. Develop a scoring system: A scoring system will ensure a fair and objective evaluation of the different real estate options. The scoring system involves assigning weights to the criteria identified in step two. Then each real estate option is scored numerically based on how well it meets the business's needs and goals, as shown below.

5. Compare the results: Finally, the business compares the scores of each option and conducts a thorough analysis of the pros and cons of each option. In the example above, location 2 scores higher than locations 1 and 3. So the business will likely pick that location. Ultimately, the goal is to identify the real estate option that best meets the business's needs and goals while providing the best value for money.

Competition and market potential

The level of competition in the area is another major factor. Differentiating and attracting customers may be more challenging if many businesses offer similar products or services. A location with fewer competitors will allow the company to stand out and attract a larger market share. However, having competitors around is sometimes good, as the company can benefit from overflow from the existing businesses.

Market potential is the business's ability to grow and succeed in the chosen location. Determining this requires evaluating the size and demographics of the local market and the potential for the company to expand into surrounding areas.

When evaluating the competition and market potential, businesses should consider factors such as the local economic climate, consumer habits, and the overall demand for the business's products or services.

Tips for choosing a suitable location

It is always better to take a strategic approach when choosing a location than adopting a trial-and-error process. A few tips to remember when selecting any location are as follows:

• Rent: Paying expensive rent at the onset of the business will increase operational costs and dig into any profit margins. Starting at locations with affordable rent can help keep costs low and give the business room to grow.
• Primary Customer Segment: Understanding the needs of the primary customer segment in the area is essential. Picking a location dominated by a customer segment the business cannot satisfy will, at best, require additional investments to upgrade its products or services. Worse, it could lead to customer dissatisfaction and heavy losses.
• Population Size: The more people in a location, the more potential customers for the business. But locations with higher population densities often charge expensive rent. At the onset, it is usually best to seek out locations with affordable rent and optimize sales by selecting a location with high foot traffic.

Identifying high foot-traffic areas: A good way to optimize sales is by understanding the foot traffic volume around different areas. Choosing a location with high foot traffic in an area with low to moderate population density can make the difference between failure and success. For a food truck, the best way to identify the high foot-traffic spots in an area is to rotate spots and record the average daily sales over a couple of days at each one. To ensure accurate results, record only days when pricing, recipe, weather, and external events were the same.

• Competition: Intense competition in a location can limit profits. The best time to venture into a location with competitors is when the business is sure of its competitive advantage. This competitive advantage can be the ability to secure the highest foot-traffic spot in the area or superior resources and reputation.

Case Study: Relocation of Aurora Manufacturing

Problem

Aurora Manufacturing Co. was facing a problem with its current location. The facility was outdated and did not have the necessary infrastructure to support its growing business. In addition, the cost of leasing the space had become unsustainable, and the company struggled to stay competitive. As a result, the company began to search for a new location that would better meet their needs and allow them to continue to grow and succeed.

Factors considered

When considering potential locations for its new facility, the company took many factors into account:

• Location: It wanted a site easily accessible for its employees, customers, and suppliers—Preferably in a region with a robust economy.

• Lease: Aurora needed to ensure the lease for the new facility will be competitive and not drill a hole in their bottom line.

• Proximity to transportation: The company also wanted to find a location close to major transportation hubs to facilitate the movement of its goods and materials.

• Zoning regulations: The new location also had to be zoned for industrial use by the government.

• Building quality: It wanted a facility that was in good condition and could accommodate its equipment and machinery.

• Availability of parking: The company needed to ensure sufficient parking for employees and delivery vehicles at the new location.

• Access to utilities: The company needed to ensure that the new location had access to the necessary utilities, including electricity, water, and gas.

Evaluation process

The company developed a scoring system based on the above criteria to evaluate the different real estate options. It gave each option a score based on how well it met the business's needs and goals, with the highest score indicating the best option. To ensure accurate scoring, the company conducted site visits and engaged with other experts to further assess the different options.

Impact of the decision

After evaluating its options, the company chose a new location that scored the highest in the evaluation process. The new facility was in a more convenient location, had modern infrastructure, and offered a more competitive lease rate. The company was able to move its operations to the new facility without disruptions, which has positively impacted the business. The company has experienced increased efficiency and productivity, attracting more customers due to its improved location.