5 Important Factors That Influence the Location of Small Business


By: Site Engineer, Staff

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As many factors influence the location of industries some factors equally influence the location of businesses. Such factors are personal factors, economic factors, socio-cultural factors, geographical factors and some specific factors like service location, retail location, wholesale location, manufacturing location, etc.

These factors enumerated below should not be taken for granted when a business is to be sited, as they are paramount in ensuring the success of the business.

A good entrepreneur should take note of factors influencing the location of a business before locating his business because any business that misses this basic foundation will suffer for it. These factors are:

1. Personal Factors

In locating a business, each entrepreneur has his values, dos, and don’ts in mind before embarking on the business. With constant strikes, riot, and tensions nationwide, some entrepreneurs must have made up their minds on where to locate their business and where not to locate them. Some of these personal factors influence greatly the location of business by the entrepreneurs.

2. Economic Factors

Any serious entrepreneur must view economic factors very seriously because money is one of the mainstays of any business. When choosing a location for business, the entrepreneur must look at certain factors like the purchasing power of the target audience, and the competitive power of the target audience. Depending on the type of business the entrepreneur should take advantage of the available economic factors- available before the final allocation.

3. Social-Cultural Factors

These play a lot of roles in locating a business. The entrepreneur should take into consideration certain socio-cultural factors like the norms and traditions of the people, the infrastructural facilities such as pipe born water, good roads, and constant electricity supply.

Equally to be noted is the religious traditions of the people. For example, there is no business wisdom building a beer factory in a Sharia State.

Geographical Factors

Given the fact that different areas are blessed differently, the entrepreneur should exploit the comparative advantage of that geographical area when locating his business.

Specific Factors

There are other specific factors apart from the above general factors that the location of business depending on the nature of the business. These specific factors related to the line of business, which the entrepreneur may find himself establishing, thus:

  • Service Business: The entrepreneur should, first of all, decide on what type of service business he is into; it is the type of service business that determines the location.

Good and assessable location is very germane for the location of the business and populated neighborhoods.

  • Retail Business: Similarly the entrepreneur should take care of certain factors when locating his retail business. Some retail stores, which do well when sited near certain other types of retail stores. Examples of such businesses are:

Men’s and women’s apparel and variety shops are commonly located near departmental stores.

Restaurants, barbing shops, candy, tobacco and jewelry stores are often found near theatres.

Drug stores may be found in any of the above groupings.

Paint, home furnishing and furniture stores are generally near each other.

  • Wholesale Business: It is always better for a wholesaler to site his business in an area where there is a heavy concentration of the retailers he supplies. At times he may equally have some other retailers located in suburban areas. In this case, he can select the outskirts of the needs of both the city and suburban customers.
  • Manufacturing Business: The manufacturing business is best located in an area that has the best advantages of a minimal combination of cost of production and distribution.

Some important specific factors that should influence the overall location decision, which should include:

  • Closeness to the market
  • Closeness to the suppliers
  • Availability and cost of Labor
  • Availability and cost of infrastructure; power supply, telephone service, good road network, closeness to railways where haulage of raw materials and finished products will be cheaper by rail closeness to ports for easy shipping and receiving of goods if the firm is involved in the exportation of goods, etc.
  • Enough land for the building of factories, parking facilities, and expansion when the need arises.
  • Accessibility to the site. There should be less traffic congestion at the factory site. This is because of the need for ease of movement of the factory trucks where available.
  • Federal, state and local government regulations and taxes.
  • Transportation service and cost.


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