There are three major steps involved when choosing a business location. First, you need to determine the type of location that will work for your business. Next, you need to start the search for the building or office. Then, once you narrow your search down to a few locations, be sure to vet each location to ensure it will work for your business.
1. Determine Your Location Needs
Before starting your search, you should have a clear idea of what specific features you want your business location to have. When testing your business idea, you need to ensure you can afford the location needed to make your business a success. Asking yourself the following questions will assist in your decision-making process.
- The pros and cons of renting versus leasing?
- What’s your ideal parking situation?
- Would you like to have a specific building style?
- Could your business violate any local ordinances?
The more precise you are at this step, the easier your search will be.
Purchase or Lease
You may be leaning toward either leasing or purchasing your new location. There are advantages and disadvantages to each. Often, buying a building may cost less than you realize due to a lack in demand or city and state incentives. When making a decision, consider your immediate and anticipated budget as well.
Government provides incentives
Landlord receives incentives—may pass on savings to tenant
Generally, yes—depends on the economy and location
Lease deducted as a business expense
Rent extra space
Need landlord’s permission to sublease
Complete control of layout and decor
Need landlord’s approval
Mortgage, utilities, insurance, and upkeep
Landlord may pay partial utilities, insurance, and upkeep
Your startup capital goes to the down payment
No down payment—owe first and last months’ rent and deposit
Coworking or Standalone Office?
If you’ve decided you’d like to rent, consider a coworking location. Coworking is when several companies share an office space. Rent is typically lower because you are sharing common areas such as conference rooms, bathrooms, and a kitchen.
Coworking locations also share other costs like utilities, internet, and a front desk employee. Coworking can run around $300 a month for a personal desk to over $700 a month for a small office.
However, a standalone office may provide certain features that coworking can’t. If you handle sensitive customer information you may need additional security. You also miss out on public-facing branding, like signage.
Plus, with a standalone office, you may be able to do minor build out customization to suit your needs—more walls and offices. Coworking offices typically will not change its layout for a member.
Research Local Ordinances
As you start considering areas, an essential first step is checking zoning and local ordinances. These ordinances can restrict or ban certain types of businesses. Some areas of a city may be specific to commercial or manufacturing. Also, if it applies to your business, look into requirements regarding live music, outdoor activities, types of products sold (such as liquor), or signage.
If you decide to build out your location, you may need special permits or inspections from the fire marshal or local building authorities. The best place to check for ordinances and requirements is with your city’s department of planning and building official website. If the ordinances are confusing, consider seeking the advice of a local business attorney.
Determine Your Parking Needs
Parking needs vary drastically depending on your type of business and its location. Consider the following questions when determining your potential business’s parking needs:
- Are there special spaces available: handicapped, pick-ups, veteran/hero?
- What is the lot’s condition: Does it need repair, refinishing, or new lines?
- How hard is it to get into and out of the parking lot?
- Can supply trucks park and easily reach the building?
- How is the area’s security? Is it well-lit and monitored by security cameras?
- Are any homeless sleeping there?
- Are there signs of trash in corners and vandalism?
Do You Need a Specific Building Design & Style?
A unique building, either in design or function, can affect many aspects of your business such as your brand, networking involvement, and the ability to attract employees.
For example, having a hip downtown location may make your business more appealing to a younger workforce. It also could be a great locale to host networking events. However, this type of site may be higher priced than a more remote location.
The type of building your customers would expect to find you in—whether it’s a kiosk in the mall or a Victorian-style boutique downtown—affects your business’s marketing. Your space should also respect your employees’ needs, such as open office versus modular spaces, private conference rooms, or open areas for casual meetings.
2. Search for Your Business Location
Once you have determined your location needs, you are ready to start your search. Be open to updating your expectations as you better understand the properties and area. You may need to make compromises to get something you can afford. If nothing of interest is available, you may have to search elsewhere to get your ideal location.
Conduct an Online Search
Start your search by better understanding where your target customers live. The Census Bureau, City-Data, and Proximity are great researchers to assist in your research. In addition to these online data resources, you can learn about area demographics through sources such as the city’s business development office website, the local SBDC or SCORE office, or the local newspaper.
Once you better understand where your target demographic resides, browse these websites for available commercial properties:
Work With a Commercial Real Estate Agent
Working with a commercial real estate agent can save you time and headache when finding properties and negotiating a purchase or lease agreement. An agent may be especially important if you are not familiar with the area. They understand their market, may know about properties that may not be posted yet, and should be familiar with the area’s zoning laws and nuances.
When working with an agent, they will handle tasks including showing you the property, assisting with inspections or financing, and helping you negotiate the contract. They may also have contacts with government agencies that offer incentives for building or starting a new business.
Regarding cost, expect to pay a commission between 1% and 6% on the property’s final sale price. If it’s a rental property, the commission fee may be higher and is usually for the total amount of the rent for the life of the lease.
Typically, the more expensive the property, the lower the percentage. For example, an agent may charge 6% on a $1MM property purchase, but only 1% on a $20MM property. You also need to know that some realtors charge a flat fee instead of a commission.
Work Directly With an Owner
You don’t have to hire a real estate agent to purchase or lease commercial property. If you choose to work directly with an owner, you’ll need to find your own properties, negotiate on your own behalf, and interpret the legal paperwork. If you’re reviewing a contract on your own, it’s recommended to hire a business attorney to ensure you don’t misinterpret any important clauses.
When working directly with a property owner, be clear about your needs and goals. Clear communication helps move the purchasing or leasing process go smoothly. Have data and comps to back up your offer and negotiate in-person on essential points. Be sure to do a thorough inspection of the business and fix any problem areas before negotiating, signing, and taking final possession.
Incentives for Working in Certain Locations
State and local governments often offer tax credits for businesses to start in an underdeveloped area. The purpose of these incentives may be to bring jobs to a particular area of the city or attract specific industry. You may also find state-specific small business loans or other financial incentives to open your business.
You can further research these opportunities by visiting state and local government websites, local SBA offices, and SBDCs. The federal government also offers benefits to small businesses that are based in underutilized areas—the HUBZone program.
Finally, some government facilities rent land or buildings to businesses. This opportunity could be especially useful if your customer or supply base is the military or government employees.
Even if you decide to lease and not buy, look for a building in an area that provides incentives. The landlord may pass down the savings in reduced rent.
3. Vet Your Location
Once you’ve completed your search, before signing a lease and starting your business, take time to look over your location options carefully. A site can make or break a business. Here are considerations below to review for your business.
Complimentary businesses can bring you more customers. For example, a restaurant might benefit from being near a theater or entertainment center. Certain nearby benefits can help your employees as well—having your office near daycare facilities or eateries.
Also, look for logistical benefits. These types of benefits can make your business more appealing by lowering transportation and shipping costs. Are you near a highway exit or subway station? Will your suppliers have easy access to your location? Do you want to work with any of the businesses nearby?
Consider the drawbacks of an area as well. For example, several nearby businesses that are in direct competition will draw away your customers. Or maybe the city has scheduled several months of road construction in front of the building.
Consider COVID-19 in your purchase as well. Are you able to adapt to local requirements if an outbreak occurs in your city? Will you have room to adhere to social distancing, or are you limited in space? For example, can the location convert to wider aisles, order-and-pick up with ease, or provide outdoor dining?
Review the Lease
Look over the lease for stipulations like prohibitions on layout changes, who is responsible for building upkeep, what insurance/liability coverage the landlord has, and if there are protections against rent increases.
You do not need to sign a lease as-is—meaning as it is given to you. Consider negotiating with the landlord for relaxed restrictions or build out needs. Have market research to back up your demands, either what other businesses offer in the area or how you will benefit the landlord by being his tenant. Before signing the lease, consider having a lawyer or real estate agent look over it to ensure it doesn’t contain any suspect conditions you weren’t aware of.
Determine Foot Traffic
If your business depends on foot traffic, don’t blindly accept the real estate agent’s or landlord’s assertion that the area attracts many potential customers. Try to determine the foot traffic yourself:
- Ask the owner for stats of previous businesses—or ask the management if it’s a mall, shopping center, or city center
- Talk to the neighboring businesses
- Count traffic and parking
- Monitor the area at different times and different days of the week
Commercial Building Inspection
Have the building inspected by a professional before signing any documentation. Commercial inspectors do a visual review of all areas of the building and its systems. They’ll also check mechanical systems. Usually, depending on the building’s size, the inspectors do a representative sample of the devices like plugs, ducts, and sinks.
The inspection cost varies by building size. Typically it costs six to 10 cents a square foot. Have the inspection done before signing a contract or lease in order to negotiate for repairs. You need to make sure the building is up to code and able to support your business’s needs.
Frequently Asked Questions (FAQs) (if applicable)
What should I consider in my building budget?
A building budget contains more than the rent or mortgage cost. Include the following:
- Cleaning services
- Parking fees
- Security services
- Move in fees
What are contract items I can negotiate?
You can negotiate more than the price. Review the interior. You can ask about keeping the equipment like desks, office chairs, or modular furniture. Inspect these items personally to ensure they are of quality. Also, negotiate on improvements, maintenance, or options for a larger area if you need to expand later.
If I’m buying, can I ask for improvements to the building?
Yes. It’s not uncommon to make renovations part of the deal. Ask for structural improvements, like fixing the leaky roof, updating the no-longer-in-code electrical, or removing old signage. However, don’t be afraid to recommend changes like paint or flooring. Many developing areas will also build to suit your needs.
Who else should I consider when choosing a location?
You need to find the best place for yourself, your employees, and your customers. But also consider the impression you’ll make on investors or future buyers. Especially if you are buying an office, these are long-term considerations that can pay off.
When should I rent? When should I buy?
If you’re unsure whether buying or leasing is the best option, here are some considerations.
Buy if you:
- Want to rent out space for secondary income
- Will be in the space for more than seven years
- Want to build equity
- Need the flexibility to make changes as needs arise
- Think the property itself is a good investment
Lease if you:
- Are unsure you want to stay in the area
- Think you will grow in the next few years
- Can’t or don’t want to put in a large down payment
- Don’t want to maintain the property
- Can’t find something in the ideal area that you can afford
- Find a great location that is lease-only
When choosing the right location, look beyond the building. Consider if the neighborhood is well-suited for your customers and employees. Think about your suppliers—does it offer accessibility? Consider safety, capacity, utilities, and soft benefits like foot traffic or complementary neighbors. Research government incentives to see if there are any great deals. With effort into analysis and negotiations, you can find a great place not just for now but for many years to come.