Factors to Consider When Choosing a Business Location and Site

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By: Site Engineer, Staff

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Getting a good location is very critical to the success of your business and there are many things to consider when choosing a location for your business.

Location of a business is the choice of a geographical area such as a region, a state, local government area, town or area in a town in which to establish a business enterprise.

Within such a geographical area, there must be several alternatives sites on which to erect the permanent facilities of the business. A choice has to be made of the alternative sites. The considerations for selecting the location of a business are often different from those for selecting the site.

The location of a small business is vital to its performance and has lasting implications for the business. Once a choice has been made and scarce resources invested in permanent facilities, the decision cannot be changed without incurring a substantial loss. Therefore, a careful choice of location enables the small business to avoid unnecessary costs and to minimize the total cost of operation, such as transportation of raw materials, production and distribution cost.

Choice of location also enables the small business to select a specific market niche and the preferred economic, social and legislative environment in which to operate.

Location is the most important competitive strategy for a small business. Through the choice of location, small businesses are able to position themselves adequately to meet the needs of their customers quickly. Poor location is likely to have bad effects on the operations of small businesses given their limited resources and capabilities. A small business that has invested substantial resources on permanent facilities may be ruined if the location turns out to be unfavorable.

Consideration For Selecting a Business Location

All of the factors discussed below are not equally important in selecting the location of the business. It is the relative weight exerted by the factors that determine the final location of the business.

The factors to be considered in choosing a small business location are as follows:

1. Public Policies

The government provides special assistance to some certain areas such as urban areas and big towns in such a way to attract foreign investors. Such areas enjoy rapid development and industrialization. Among the specific objectives designed to realize this goal are dispersal of industries, attracting foreign capital, increased export of manufactured goods and increased private sector participation in manufacturing.

The policy measures, programmes, and incentives designed to achieve these objectives make certain areas attractive to business. The variety of programmes and incentives include ease of land acquisition and development, the establishment of industrial estates with appropriate infrastructural facilities, the creation of export processing zones, tariff’s protection, tax incentives, ease of obtaining permits/licenses, etc. Businesses consider these programmes and incentives as they affect profitable operations. Also, they consider the multiplicity of regulations and approving authorities as well as the attitudes and styles of officials who implement these policies and programmes. Thus, even though public policies are attractive, businesses may not locate in certain areas where the attitudes of public officials are not favorable to business operations.

 2. Market Consideration

Nearness and accessibility to centers of consumption is an important consideration in the location of businesses. By locating close to customers, the cost of distributing the products is reduced. The needs and purchasing habits of customers are better understood and customer loyalty can be assured. For service-oriented businesses, nearness to users is important. Since users must invariably be present to receive the services of the business, locating close to them can reduce the transaction cost of users. For manufacturing enterprises, the cost of distributing the products is reduced especially where customers are concentrated rather than dispersed over a wide geographical area.

3. Personal Preferences

The personal preferences of the key decision-makers in a business enterprise ultimately determine the choice of a location. Whereas technical and economic analysis may favor one location, the views and desires of the important decision-makers such as the owner may result in the location of the business in a different place. Where this occurs, the business is likely to incur unnecessary costs and operate at a less than optimal level.

4. Climatic and Environmental Consideration

For some businesses, these factors may not be significant considerations in choosing a location. Some business enterprises require certain climatic conditions to operate optimally. Owners and managers of business enterprises are expected and indeed required to ensure that their operations do not have an adverse effect on or dislocate the environment. In choosing a location, therefore, the nature of the noise, heat, dust, fumes and other wastes generated by the business are carefully considered. Also, the temperature of a proposed business location has to be carefully studied because there are equipment for some businesses which cannot be durable in cold or hot weather.

5. Input Consideration

Businesses that use relatively bulky or perishable raw materials that are difficult and expensive to transport tend to locate where such raw materials can be obtained. The cost of transporting raw materials must be weighed carefully in making decisions on location. In recent years, however, tremendous developments have taken place in refrigeration and containerization as well as transportation technology. This has made it possible to transport raw materials over long distances with minimum risk of spoilage. When the cost of transporting raw materials is considered along with the benefits of locating close to the customer, the choice might not be a straightforward and easy one. In such circumstances, a location is selected which minimizes the total cost of transporting raw materials, production and distribution.

6. Availability of Labor and infrastructure

Other inputs that must be considered are the availability of labor and infrastructural facilities. The competitiveness of the business enterprise depends on the knowledge, skills, and attitudes of manpower available to it. Thus, the business can avoid the substantial cost of training and attain an acceptable level of productivity by choosing a location in which the right caliber of personnel of all categories can be readily obtained.

In a developing society where the level of development of infrastructural facilities is low, due consideration must, therefore, be given to geographical areas where these facilities are available and reliable.

The availability and reliability of energy supply, transportation, water, communication facilities, housing, educational institutions, and recreational facilities are important attractions of business to certain areas.

Consideration For Selecting a Business Site

The site of a business is the address in a geographical area where the business enterprise may be found.

Choice of a specific site depends, as in the case of the choice of location, on a number of factors:

1. Legal Consideration

Before entering into agreements on the purchase or renting of property, it is often useful to seek the expert opinion of estate surveyors/legal practitioners and scrutinize the terms of the agreement. A small amount of money that you will spend for this purpose will save you from unforeseen legal implication if properly handled by an expert.

2. Availability of a Suitable Land or Building

The most suitable land or building may not be available. Alternative sites or buildings must, therefore, be evaluated on the basis of cost/rent of the property, payment terms, and renewal clauses, site development or property refurbishing cost, security of title to the property and availability of and cost of extending infrastructural facilities. Availability of room for future expansion and for development of support facilities such as parking lot and availability of waste disposal facilities are also important considerations in selecting an alternative site.

3. Traffic

Traffic flow indicates the potential number of customers that may patronize the business. It also indicates the relative availability of transportation services. In order to compare alternative sites with respect to the volume of traffic, it might be necessary to do a traffic count on selected day/weeks for each alternative site. The pattern and volume of traffic flow are important for certain businesses.

4. Compatibility of the Business with Local Environment

Customers expect to find certain kinds of businesses in particular environments. A business that fails to take this into account is likely to lose opportunities for patronage or incur substantial promotional costs. For example, siting a high profile boutique shop in a rundown low-income district might not only pose security problems, it might also not attract the expected caliber of customers. Some local authorities have approved land-use plans which restrict certain types of business activities to designated areas. Adherence to such plans ensures some measure of the capability of businesses with the environment. It also gives an opportunity for the development of business services that are needed by the enterprise.

5. Policies of Local Authorities

Local authorities grant various permits and charge rates and taxes. They also attempt to regulate the flow of traffic on certain streets. Some local authorities are investment friendly while others are not. The ease of obtaining permits and the regulatory environment of the area should be carefully studied before a decision on site is taken.

6. History of the Site

The history of the site should be carefully investigated. This is likely to yield important information on the previous occupants, their reasons for vacating the site, the attitude of the landlord, of neighbors, and the community. It is also likely to indicate the security conditions in the neighborhood and risk to which the business might be exposed.

 7. Convenience of Customers

To induce the customers to patronize the products and services of the business enterprise, a site that reduces the travel cost and meets the other various conveniences of the customer is selected.

Consideration is given to the nearness of the site to the homes or business of customers. The business may also be sited such that it is easy and inexpensive for customers to compare prices/quality with those of competing firms, or use other facilities such as post offices, banks, etc. An understanding of the buying habits of customers helps in siting businesses to meet the convenience needs of customers. For example, where customers are willing to spend time and effort in searching for products and services, the site of the business is not as important as where they are concerned with such expenditure.

 

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