It’s hard to overstate the importance of site selection for your small business. Even some of the best-known and most well-financed franchises have struggled and closed after trying to make a go of it in the wrong location. So how can you make sure you are choosing the right location for your business?
Well, the first thing to note is that there really is no such thing as an objectively perfect location. There may, however, be a perfect marriage between a location and your specific business needs.
Choose Your Customers First, Then Your Location
Once you have an idea of who your customers are (or will be), the focus of your small business site selection process should be on foot traffic (or car traffic) and ease-of-access. In places like New York City, this means being near the subway on a busy street, but for most of America this means thinking about car traffic flow and parking spots. Ever wonder why you see three gas stations at the same intersection? They are all picking off different traffic flows because they know customers are looking for the shortest possible detour when they need to get gas. Starbucks make a similar calculation when they put two coffee shops directly opposite each other on a busy thoroughfare.
“Every time I’m choosing a new location, I head down to each option with a big flask of coffee and a clicker to count all the people that walk past. Then I walk to the nearest public transportation stop at rush hour and look at how people are heading home. I turned down one location because while it was right next to the subway, I noticed all the commuters were coming out of the other subway entrance. It turns out all the residences in that area were on the other side of the street.”
– Jason Richelson, Founder and CEO of ShopKeep and Experienced Small Business Owner
At a Glance:
- The wrong location will hobble your business before you’ve even gotten started, so it’s important to thoroughly research your options.
- Site choice should be based not just on obvious factors, such as foot traffic and parking, but on a deep understanding of your customers and their needs.
- Don’t rush in! Test the viability of your products through e-commerce and flea markets to get real-world data on your potential retail locations.
- A long-term commercial lease is a big commitment, so get expert advice and negotiate on every aspect of the agreement, not just the monthly rent.
Think Lean: Do You Really Know How Much Space You Need?
We all have a “dream” small business space in our heads with a full checklist of amazing features. It’s probably large and full of natural light, maybe opposite a park and filled with great details like a beautiful, long solid oak counter and a little bell over the door. There’s absolutely nothing wrong with these aspirations. In fact, it’s vital to have a clear vision of what you’re working towards. It can, however, become a problem if you let the perfect become the enemy of the possible.
To avoid this scenario, define the core characteristics you need from your store and write them down in a prioritized list from one to ten. Now cross off the bottom five. Compromise is essential in choosing a commercial space, especially in popular neighborhoods.
It is also essential to take a lean, data-driven approach when choosing a space. The average length of a commercial lease has dropped in recent years, but is still often well over five years, so the absolute last thing you want to do is rush in and leave yourself locked into a bad situation. Luckily, if you’re not quite ready to sign a lease, there are many ways by which you can test the viability of your business idea before you invest in a specific location.
You can start by testing the desirability of your products and services through e-commerce. It might turn out that your core product line will actually be much smaller than you originally envisioned. If you’d rather do things in person, there are now a number of services (such as Storefront) that will allow you to secure a “pop-up” lease on some incredible spaces, often only for days at a time. It may just end up that your dream location isn’t as great as you originally thought.
As with every aspect of your small business, it’s important that your decisions are guided by real-world data, not intuition. To learn more about a data-driven approach to small business, make sure to check out Lean Retail 101 by ShopKeep Founder and CEO, Jason Richelson.
You Found Your Location: Now It’s Time to Negotiate
When it does come time to choose a long-term space and negotiate a deal, it’s important to remember that there is much more to discuss than just the monthly rental rate. Subjects you’ll want to raise include, but are not limited to, the proposed length of your lease and options for renewal, responsibility for ongoing maintenance and repairs, payment of utilities, and obligations around property insurance. Parking rights are also essential for many locations, especially if you in a small shopping center.
If you’re moving into a space and it needs renovations to make it work for your store, like if the property needs improved data-connectivity, you’ll also want the landlord to take on responsibility for that work. If you have to do the work yourself, it’s advisable to ask if the landlord will consider a rent-free or reduced-rent period.
Understanding Commercial Rental Rates:
Commercial rent is most commonly quoted as the cost per square foot per annum.
For example, say your retail location is 2,500 sq ft at a cost of $56/sq foot. That would mean your rent is 2500 * 56, which equates to $140,000 (or $11,666 per month).
Above all, remember that all of these elements can form part of your negotiation. Unless you are pursuing a highly-desired space in a hot rental market, there is usually a point of leverage available to you in every lease negotiation. When it comes to getting the best possible deal in these situations, you’ll want to seek quality professional advice, which normally means speaking to a broker and/or a real-estate lawyer.
One note on commercial real-estate brokers: It’s important to heed their counsel, but remember that the right location is worth waiting for. Commercial brokers will often push to get you into any location, not necessarily the right one for you.
Meanwhile, a great real-estate lawyer will consider every angle and ask the insightful questions you might not have thought to ask. For example, does the landlord intend on erecting scaffolding on the building at any point during the lease? If so, can the rent be reduced to reflect this situation? You will also want to ask to have a clause included allowing you to sublet if necessary, which can be important if you ever find yourself struggling to make payments.
Lean Retail 101
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