The Importance of Location
The Importance of Location
The location of your business is as important to your success as having a good product to offer to your customers. For retail businesses in particular, the location can make - or break, the business. It is important that the demographic profiles of people who work or live in the trading area match the target customer profile for income level and age group.
Manufacturing or distribution business may be less dependent on the need to be close to its customers or have drive-by visibility. Instead, it may be more important to have larger premises at a lower rental cost.
Businesses such as motels, doughnut shops, gasoline service stations, and small family restaurants may be better located near a highway.
Walk-By Traffic
Does the business require a high level of walk-by traffic to be successful? If so, is it in a location that provides sufficient pedestrian traffic now and to provide sufficient growth, or will you have to consider relocating the business at some point in the future?
Drive-By Traffic
Does the business rely on drive-by traffic? Is there adequate parking readily accessible to your business operation? Is the parking free, as in a shopping mall, or will your customers have to pay to park in an underground lot or in a coin-metered space? If you have a business that serves trade customers and delivers products to them (for example, automobile parts), then parking for your customers may not be an important factor. Is there traffic congestion throughout the day or just at various peak times during the day, evening, or weekend? Do any of these traffic problems seriously affect a customer’s access to the business?
Shopping Centre
If your acquisition target is located in a shopping mall, you should do your research thoroughly. Evaluate the type of tenants in the mall where the business is located to determine whether they would draw traffic to your or be in competition with you. If the shopping centre has several major or national anchor stores, this should attract a large volume of potential customers. Major tenants might include department stores, large supermarkets, and many national chain or franchise retail or service operations.
Also, take the time to check out other malls within the trading area, to see how they compare with the mall in which the business is located. You should also check out if any other shopping centres are in the planning stages and how they might impact consumer traffic in the future.
Shopping-centre leases tend to be very complex and have stringent clauses in terms of the landlord’s rights and requirements. It is also common for the landlord to request a percentage of the tenant’s gross sales in addition to the base rent and this needs to be weighed against the benefit of exposure to a high volume of potential customers.
History of the Location
At first glance a location might appear to have all the necessary ingredients for the business to be a success, but upon further research it may turn out to be a location where many businesses have failed. Look for such warning signs as too many vacant suites in the building, for-lease signs, or going-out-of-business sales. Another factor could be adjacent buildings to the location. They could be drawing away traffic because of better promotions, nicer facilities, and more attractive leasing rates. Possibly the landlord is difficult to get along with, and that is why many tenants are not renewing their leases. Maybe there has been a turnover of landlords or property management companies, which has caused instability in the operation of the building.
Changing Patterns of Neighbourhood
Take a look at the surrounding area. Is there growth activity occurring in terms of buildings or houses that would show an increase in a potential market? On the other hand, if there is a declining pattern, it could negatively impact the business in the future. Contact the municipal office and make inquiries regarding the development in your geographic market area over the next few years.
Competition
Thoroughly research the competition that is in the market area. Possibly there is very little competition, or the kind of competition that could be threatening to you. For example, a large national chain or franchise operation could spend a lot of money on advertising and promotion. Also look at the proximity of the competition and determine their strengths and weaknesses. Would you have a competitive edge?
Hours of Operation
If hours of operation are important to the success of the business, check to see if the landlord has stipulations in the lease that the building is open for operation only within specified hours. If you the business is located in a shopping mall, you may be required to be open for business at all times that the mall is open and restricted from opening outside of those hours. If opening the business on a Sunday is important to grow the business, check if the municipal bylaws will allow you to do this.
Rent Payment
Obviously, the amount of rent you are going to pay is a critical factor in determining whether the location is attractive. Many small business bankruptcies are due to excessive rental payments. Ask yourself how the proposed rent measures as a percentage of your anticipated sales. Is the rent within industry averages as a percentage of sales? Rent costs in excess of industry averages can be justified only if the location allows for higher mark-ups or other benefits that offset the higher cost.
Norman P. Friend
President
Franchise 101 Incorporated.
