6 Mistakes Small Businesses Make When Choosing a Location

Linda Childers

The number one rule in real estate is location, location, location, and this is especially true for small businesses. Whether you’re looking to open a new store, or moving to a different city, the site you select can either make or break your business.

The Small Business Administration (SBA) says choosing a location is perhaps the most important decision a small business owner will make, and that finding an optimal location takes planning and research. To ensure you choose the best venue for your business, avoid making these five common mistakes:

1. Choosing the Wrong Realtor

It seems as if everyone knows a good realtor –they may be a family friend or someone you met through a local Chamber of Commerce event. Yet when you’re looking to secure a new business location, you don’t just need a good realtor, you need one that specializes in commercial real estate.

“A commercial real estate broker will have more knowledge as to whether the location you’re looking at suits your business needs,” says Nancy Bigley, CEO of Bottle and Bottega, a business that offers paint and wine pairings and is headquartered in Chicago.

Make sure the broker you choose has experience leasing office space and is solely representing you as a tenant. Once you select a broker, they can assist you in determining what type of location best meets your needs (shopping mall, office building, etc.), and help you to obtain a pre-lease inspection to determine potential costs/problems, and negotiate a lease. The SBA recommends that small businesses negotiate one-to two-year leases with the option to renew.

2. Relying Solely on Demographics.

On paper, a location may sound like the perfect venue for your business, but you should always spend time at the site before signing a lease.

“Visit the proposed location, at different times of the day and night to determine customer traffic patterns,” says David Wild, director of franchising at Sloan’s Ice Cream, an ice cream, candy and toy wonderland with locations in California and Florida. “If your business operates evening hours, and the area is quiet at night, it’s not going to be a good fit.”

A seasoned franchise professional, Wild recommends securing a venue with high customer traffic and visibility that is close to where your target customers live and work.

Also consider where your competitors are located, and how customers will travel to your business. Is there ample parking, or are you close to public transportation? You want to know everything you can about an area before you sign a lease.

3. Not Estimating Your Budget.

Wild says one of the most common business mistakes he sees is small business owners that enter into lease agreements they can’t really afford.

“Small business owners often find a location in an up and coming area and believe they can justify paying more for rent because the area will offer them a significant increase in business,” Wild says. “Unfortunately, this isn’t always the case.”

Rather than overextending yourself on rent, Wild encourages small business owners to take less risk and find a monthly lease that is affordable and within their budget. In addition to a monthly lease payment, keep in mind that landlords often incorporate extra expenses into the lease such as maintenance fees, and upkeep for shared facilities. Other expenses to consider are utilities. Before signing a lease, ask your broker or landlord for examples of costs that are typically incurred by other tenants in the building.

4. Neglecting to Talk With Your Potential New Neighbors.

Before signing a lease, both Bigley and Wild recommend that small businesses owners talk to other business owners in the area.

“Ask other small business owners to tell you about the neighborhood and the space that you’re considering leasing,” Bigley says. “Ask if they are happy in their location and if they plan to renew their own lease.”

5. Not insuring the property correctly, or not taking insurance into consideration.

Commercial property insurance protects both a property your business owns or one it leases.

6. Overlooking Natural Partnerships.

Small business owners often assume that if they open shop in a popular area that their customer base will grow organically. Yet Bigley says taking the time to form partnerships with your new neighbors is the best way to ensure your business is successful.

“Look at other small businesses in your area that are looking to attract the same customer base,” she says. “At Bottle and Bottega, we partner with Nothing Bundt Cakes, a neighboring business, because their delicious cakes can be enjoyed when our customers are in our studio painting a canvas and enjoying a glass of wine with friends.”

When choosing a new location, question whether there are any other local businesses that share your same demographics. Are there opportunities to partner on projects or ways you can work together to promote each other’s business? Can you band together to provide customers with a more personalized service than your larger counterparts?

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