Choosing a location for your small business can seem like a no-brainer. Find somewhere with cheap rent and heavy foot traffic. Add a cute hand-painted sign and bam! Call you Mr. Monopoly — because you’re about to own this town.
But slow down, you tiny metal tophat. It’s not always that simple. Choosing a physical location for your small business is a big decision. Minimum wage, incentives, and zoning laws are just a few of the not-so-obvious factors you need to consider. Not surprisingly, a lot comes down to money.
Location, location, location: this week’s deep-dive topic is all about choosing that sweet home base for your small business.
How does your type of business affect your space?
In the words of Olivia Newton John, “let’s get physical…” about location.
How much room and equipment do you require? Hint: refer to your mind-blowing business plan. These details could mean the difference between staying on budget and paying for space you don’t need or can’t use. Rookie mistake.
A chef starting a catering business needs a commercial kitchen. An adorable grandma selling ornaments at a craft fair? Probably just a folding table and portable chip reader (she’s hip on contemporary payment methods).
A permanent business district storefront, a moveable food cart, a cheap home office—there are plenty of options when figuring out where your business should live. Many businesses nowadays run successfully entirely online. Could that be you? The physical requirements for everything from fulfillment to customer interaction will dictate where and how you set up shop.
Are you even allowed to do that here?
Speaking of requirements, you’re required to get in the zone!
Which zone, exactly? You’ll need to check with your local department of city planning.
Doesn’t matter if you rent, own, or work from home; property comes with rules. Those rules are known as zoning.
Local governments use zoning classifications to help maintain the bigger picture of a city or town. Zoning manages issues like traffic and noise levels.
Plan on buying or building a space for your business? Zoning can affect construction and building specifications.
Sometimes, you may get special permission to inhabit an area not necessarily zoned for your operation. No matter what, you’ll need to check with your local government for what’s legal.
What kind of overhead should you expect?
Some overhead is unavoidable, but a carefully chosen location can help mitigate some of the costs. Time to break out the ol’ start-up costs spreadsheet from your business plan.
Utilities and rent come as no surprise. But when you start to pull the “overhead” thread you’ll find things like:
- minimum wage laws
- salary standards
- property costs
- insurance premiums
So what’s at the end of that thread? Region!
The costs associated with location can vary from city to city, state to state. Property in a developing neighborhood will likely be more affordable than main street. Sure, it would be nice to walk to work. But nicer than paying a third less rent? Suddenly that commute doesn’t sound so bad.
If you think Elon Musk moved Tesla to Texas for the barbecue, think again.
How much will you be paying the government?
There’s no escaping the IRS. But using location to your advantage can affect your bottom line when it comes to tax rates.
As with overhead, taxes vary regionally. Some of those variations are by design. Certain states offer tax incentives to attract businesses. Since you’ll be on the hook for income, sales, property, and even corporate taxes (aren’t you glad you know a good accountant?), it might be worth a change of scenery for a better rate.
How much could the government be paying you?
Paying taxes is a fact of life. But getting something back in the form of financial incentives can be a great way to offset expenses.
Remember your funding efforts? Remember researching grants that your business is uniquely qualified for?
Time to get a little more mileage out of that hard work!
Like grants, financial incentives are offered at the local, state, and federal levels for things like job creation or energy efficiency. Nothing offered in your hometown? Qualifying for an incentive might convince you to think outside the box (or state) in terms of location.
Why does accessibility matter?
You’ve decided on a state and city. Time to get local.
Does your business rely on in-person sales? Where is your target demographic located? Is there ample parking? Good public transportation? When you think about location, you need to think about accessibility.
Do your best detective impression and stake out areas you’re interested in. Visit them at different times to get a sense of foot traffic and environment. Donut and coffee optional.
If you plan on hiring employees, consider how easy it is for them to get to work. Same goes for vendors. If vendors can’t drop off or pick-up goods, you’ll have an issue with the supply chain which can ultimately impact cash flow.
Who will your neighbors be?
While you’re running reconnaissance, pay close attention to other businesses in the area. What’s the competition like? If your desired area is already saturated with stores selling your exact product or service, it may be time to go back to the drawing board.
If competition isn’t an issue, take note of how other storefronts might affect your business. Complementary businesses can boost your client base. Non-complementary businesses can negatively affect you. Think: relaxing day spa under a tap-dancing studio.
Ready to find the perfect home for your small business?
Nothing is ever as simple as it seems. Choosing a location for your small business can make or break your enterprise. Budget, accessibility, and competition all play roles in where you will stake your claim and get started. Answering the questions above will leave you feeling confident in where you belong.
Look out for next week’s Deep-Dive #5: Business Structure.
Starting a small business requires a lot of hard work and decision-making. Most good things do! Need a little clarity on how sales tax or incentives will affect your bottom line? Reach out to KYN Accounting today.