How to choose an ideal business location

Choosing a business location that makes it easier for customers to buy from you can help you start making sales more quickly, before you run through your startup funds. However, many business owners find choosing a location a bit overwhelming.

To help guide the process and avoid common pitfalls, we’ll outline what to consider when choosing a space, exploring the different types of business locations available and provide key steps for choosing an ideal location.

“Back in the day, people used to think you needed a big space no matter what,” says Don Fitzmartin, a Denver-based consultant and owner's representative in the commercial building space. “Today, even a 5-foot by 6-foot office can be functional and adequate if you have the right technology. The fact is, you can start out frugal and expand later.”

Why location matters to your business

A location that’s convenient to where your target customers live, work or have fun can keep you top of mind and make it easy for them to stop in. If you base yourself near suppliers or other businesses that bring customers to the area, that proximity can have a big effect on your daily operations, helping you run your business more efficiently. And, if you’re part of a supply chain, being near collaborators or other suppliers and contractors can help with efficiencies and brainstorming.

What to consider when choosing a space

Keep in mind that a great location for one business may not be ideal for another. For instance, if you own a trendy furniture shop, it may be worthwhile to base yourself in an upscale mall or shopping strip. But if you run a furniture factory outlet, a larger warehouse-style space with lower rent or a lower purchase price will allow you to pass along larger discounts than your rivals can.

When selecting a location for your business, consider these factors:

• Where your target market is: Make sure you understand local demographics so you can assess whether you'll be close to your ideal customers. You can search metro area data from the U.S. Census Bureau by Zip code, and your local chamber of commerce can help with your research.
• Competition and market saturation: Look for a location where you'll not only find your ideal customers but also fill a gap in the marketplace. You don't want to open the fifth acai bowl or bike shop in a town that can realistically support only one or two (unless you offer something unique). By identifying potential competitors, including what they offer and how they market their products and services, a competitive analysis can help you determine if a given business location presents a true opportunity.
• Your budget: Consider all costs associated with moving in. “It’s important to make sure you don’t overcommit,” Fitzmartin says. You may need to pay a broker’s commission, put down a security deposit and hire a mover. You may have renovation expenses if the space doesn’t fit your needs. Consulting with an architect and engineer can be helpful. “It’s about doing due diligence before the lease is signed,” Fitzmartin adds.
• Property cost: Whether purchasing or renting, consider the price of the location to determine whether it fits your budget. If you are renting, also consider whether you’ll be able to afford the space if the landlord raises the rent. Among Bank of America small business clients, monthly rent payments were up 12% through May 2024.¹ Against this backdrop, 46% of small and medium businesses who rent said they couldn’t pay the rent in full and on time in May 2024 — a three-year high — a survey of more than 4,000 businesses by the small business network Alignable found.²
• Economic incentives: Ask your local economic development agency if there are any grants or incentives for businesses that move to a particular community.
• Accessibility: A location near busy roads, affordable parking and ample public transit can encourage customers to stop by — and keep coming back. Being easily accessible will also give you an edge in finding employees and securing vendors and suppliers.
• Regulations: If you will be serving the public, make sure your location complies with the Americans with Disabilities Act. Businesses with fewer than 15 employees are exempt from certain provisions but still must provide reasonable accommodations.
• Zoning laws: Take the time to research and understand any local zoning laws and regulations that may affect your use of the space, as well as any permits you might need.
• Building codes: If you choose a location in a charming, old building, make sure it is up to code. Otherwise, you may encounter hidden costs for removing hazardous materials such as lead paint or installing a sprinkler system, notes Fitzmartin. “That could slow down the timeline and be costly,” he adds.
• Safety and crime: Customers and employees will feel more comfortable coming to your place of business if they feel safe. You can check on a city’s crime rate by looking at the FBI's Crime in the U.S. statistics. Speak with local merchants and residents and visit the neighborhood at various times and days of the week. A downtown that feels safe when the office crowd is around may feel eerie and deserted on weekends.
• Intangibles: The location, size and type of property you need are key considerations, but other things may matter to you, such as how modern the space is or the use of sustainable building practices.

Exploring different types of business locations

Working with a local commercial broker can make your search easier. Here are some common types of locations with their benefits to help guide and even speed up your search:

• Retail spaces: These are designed for any business that requires a storefront. Visibility, foot traffic and proximity to complementary shops and restaurants can make a retail space more valuable.
• Restaurant spaces: Often situated in the same areas as retail shops, these spaces are designed for seating and serving customers and storing and preparing food. Retail brokers can often help you find a restaurant space that fits the ambiance you’re looking to create.
• Office spaces: More private than retail locations, office spaces are set up for professional services firms that need to work at desks and meet with customers. Factors such as size, layout, proximity to customers and the atmosphere you want to create may influence your choice. A commercial office broker can be an excellent advisor. Some business owners find that renting a coworking space or a spare office from an existing business can be an affordable alternative when they are starting out.
• Industrial spaces: Many industries have unique needs, and warehouse size, the availability of loading docks and zoning regulations can be important factors in choosing a space. An industrial broker can familiarize you with the options available for your industry.
• Home offices: Many small businesses start out in a home and even stay there permanently. If you have a quiet place to work, this can save you on overhead costs until you decide to scale up by hiring a team. Just make sure you familiarize yourself with state and local laws on where you can locate a business and consider the impact on the neighborhood. Your neighbors probably won’t mind if you are tutoring from home, but they aren’t likely to welcome trucks pulling up with pallets of goods for you to sell on an e-commerce site.

Six steps to finding the ideal business location

When looking for a location, you’ll want to approach your search systematically. Here are the important steps to follow:

1. Commit your vision to writing

Prioritize the factors most important to you in a visioning session, where you document the ideal location to represent your brand. Going into your search with set objectives will help you stay focused.

2. Conduct market research

Perform market research to identify communities that might be ideal for serving your target customers. Doing on-the-ground legwork in potential locales and searching online real estate listings can get you off to a good start.

3. Consult professionals

Working with a commercial broker can streamline your search. If you are buying a property and need a mortgage, sitting down early with your business banker can help you jump-start the process.

4. Conduct site visits

Once you find a space you like and can afford, schedule a tour. If you’ll need to make changes, such as adding a new wall or upgrading the plumbing, you may want to arrange a second visit with a contractor or an architect to understand what is involved.

5. Do a feasibility study

What if you’re torn between several properties? Conducting a brief feasibility study can help you decide. Compare properties based on the potential size of the market, local competition, foot traffic, overhead, parking, proximity to public transit, restrictions, needed building improvements and other important factors. Use this information to do a cost-benefit analysis to see if you will get enough of a return on your investment.

6. Negotiate the deal

Your ability to negotiate good lease terms or an attractive price for a property will depend on the market and market conditions. Rentals are priced by the square foot and generally fall within a range for each neighborhood. The price to buy a commercial property will depend on market values and mortgage rates. The length of your lease will depend on the market and the terms you negotiate. Commercial leases often last for three to five years, but some landlords will offer one- or two-year leases or longer-term leases of five to 20 years.

Adapt your strategy over time

The location that is perfect for you today may not work in the future if you expand your business — or reduce the number of team members who work on-site. You may also need to revise your strategy if there are changes in the marketplace, such as the relocation of a big company you serve. Consulting with advisors such as your banker or broker regularly can help ensure your existing strategy reflects your needs.

Secure the future of your business

The ideal business location can make succeeding easier on many fronts: attracting and retaining customers and finding talent and conducting your daily operations, to name a few. Investing time up-front to find your perfect location takes patience, but it can pay off many times over in sales and profits and help you build a more valuable business for the long term.