Locating Your Business
High Profile Means High Rent
Commercial real estate is a wonderfully leveraged investment. You depreciate the asset as it grows in value, all the while paying rent to yourself or taking in additional rental income.
Your Business Location is a Key to its Success
The question of where to locate your business should be preceded by a question whether to buy or rent. Obviously, the decision to buy or rent must be guided by the needs of your particular business. If your business requires an urban setting in a big city, buying may be out of the question. But even in a large city, an office condominium is worth considering. Commercial real estate is a wonderfully leveraged investment. You depreciate the asset as it grows in value, all the while paying rent to yourself or taking in additional rental income. Warning: real estate values fluctuate, as we all learned from the Great Financial Meltdown. If you’re thinking that you can buy a building or condo and “flip” it for a profit if things don’t work out, you need an attitude check. Think long term. Eliminate the word flip from your vocabulary when thinking real estate. But there are bargains out there, as there always are in a down market. Owning a building also gives you a lot of flexibility. If you need to expand, you could add a wing or build another floor. If you have space left over for rental, this will not only keep down your operating costs, but it will also enable you to rent to a tenant who may be helpful for your operation. Locating your business and whether you own or rent should be an important part of your business plan.
If you do purchase, I don’t recommend doing it in the name of your existing business, but rather form a separate corporation or LLC. If you sell your business, your real estate is a separate negotiation. Your buyer may intend to relocate anyway, so owning it separately will yield you a much better profit instead of “bundling” it with the sale of your business. When I sold my company, the purchaser stayed on as a sole tenant for five years.
High or Low Profile
Obviously, I can’t determine whether you need a glitzy location or a small office over a garage. Personal preference has much to do with it—probably too much. Business decisions should be rational first, emotional second. The kind of business you are in should dictate the parameters of your location. You might find an absolutely delightful building or condo, but in an area totally incompatible with your needs. Consider the following guide for types of businesses and whether they require a high or low profile:
High profile: Good visibility, traffic, parking, and quality construction. Depending on your exact business and your marketing plan, your requirements can vary greatly from another company in a similar business. For example, if you have a narrowly focused business, such as vehicular traffic consulting, go for low profile; they will find you in a directory or through Google. My former business, legal publishing and research, was conducted by phone and mail, but I opted for a high profile—one mile from a major court complex and across the street from a large restaurant that was heavily patronized by lawyers and judges. Every time they looked out the window they would see my company’s name. I actually had walk-in business, something I had never conceived of when I started the company.
The following list of types of businesses is by no means exhaustive, but it is intended to assist your thinking when making the all important decision of where to locate:
High Profile Businesses and Professions
Real estate brokerage
Title insurance company
A Modest Building May Meet Your Needs
Low profile: You have to look for it to find it. Low profile does not mean ugly. If your business is one that would not benefit from a large public exposure, the savings achieved by a lower rent space are entirely justified. Low profile can include space in an industrial zoned area. The following are some businesses that are appropriate for low-profile locations:
Low Profile Business and Professions
Graphic design firm (unless you have a significant clientele among consumers)
Internet service providers
The above businesses do not operate by customer or vehicular traffic. They get business by people searching them out, unlike a restaurant, which needs to be highly visible. The decision to locate in a high- or low-profile setting should be dictated by marketing considerations: Do you want or need to have high public exposure?
The APT Principle
A Location Planning Checklist
Caution: Do not let emotion dictate your location decision in any way. The following list of factors should be your guide. I recommend photocopying this list and using it while looking for a location. (Yes, this is an exception to the copyright notice in the front of the book.)
Importance to Your Business - Indicate the Factor next to each entry
Factor - Very Important = A / Somewhat = B / Not at all = C
Age of building
Ease of access
Ease of maintenance
Ease of wiring for computers and other equipment
Flexible lease or purchase options
High public visibility
Need for repairs
Proximity to amenities for employees (nearby deli?)
Proximity to major roads or public transportation
Proximity to support businesses such as printing
Stability (Will you be able to stay there a long time?)
Sub dividable (able to sublet to others?)
Feng Shui is the ancient Chinese art of situating or orienting a building to a spot with good "qi," that is a place with good energy or life force. An ideal building location would include it's position relative to other buildings as well as its position relative to other physical elements such as water, the slope of the land, the compass direction of the entrance, and numerous other considerations. There are people who serve as Feng Shui consultants who advise people on the location of buildings. Some Chinese people place great importance on the Feng Shui of a structure.
By using a list of factors as outlined above, you will make your decision based on needs, not an emotional reaction to a pretty building. I had a friend with a small graphic design business who dealt primarily with corporate customers and didn’t need a high-profile location. She found a place on a main road with a beautiful lake behind it, including ducks and swans and a gorgeous view. The rental costs were very high; given its location, it would have been a perfect spot for a restaurant. The rent was so high, in fact, that she would need to bring in about 20 percent more business just to crack the monthly nut. Details be damned! She threw out any financial considerations because she freaked out over the ducks and swans. She would have been better served by renting a modest place in a back-office area and splashing her computer with pretty, rotating screen savers—including ducks and swans.
Don't be guided by emotion when seeking a business location.. Make your decision based on a rational calculation of all the factors, using this article as a guide.
Copyright © 2012 By Russell F. Moran
This article was excerpted from the book The APT Principle: The Business Plan that You Carry in Your Head by Russell F. Moran