Business Start Up

How to Choose the Best Location When Starting a Business

When buying a house, your real estate agent probably talks to you about the importance of “location, location, location.” But have you considered that location is just as significant when launching a business? The difference between one city/state and another can mean the difference between success and failure.

Why Location Matters

Most entrepreneurs don’t give it nearly the attention it deserves, but location should be one of the first things you consider when crafting your plan to launch a business venture. While it’s true that the internet has torn down many of the geographical barriers that once limited companies, there are still some pretty serious factors that come into play with where you choose to set up your operations.

If you’re like most entrepreneurs, you’re probably drawn to launching your business where you currently live. And while it can be advantageous to know the area and have pre-established networking connections, initial connections only go so far. Location runs far deeper than this and can impact you in a variety of ways.

Business taxes, individual income taxes, mandated minimum wage rates, government rules, availability of business grants and kickbacks, customer base, concentration of other entrepreneurs, access to resources, cost of real estate…there are so many different factors involved. Unless you consider each of these, you can’t be sure you’re making the right decision.

In terms of choosing a location, there are some basic categories to think about:

  • State. Some states have lots of pro-business policies in place, while other states make it challenging for startups to get off the ground. Start by researching the best and worst states to build a business. You’ll find some major discrepancies between the former and latter.
  • City. Even within the same state, the choice of city can have a major impact on your business. Take California as an example. The differences between San Francisco, Los Angeles, and San Diego are night and day.
  • Neighborhood. Once you zoom into the city level, you have to think about specific streets and neighborhoods. Even the side of the road you’re located on can have an impact in some industries.

As exhausting as it can be to expend a lot of energy thinking about location, this isn’t a step you want to miss. Choosing the right state will give you a strong foundation upon which you can build for the future.

Choosing the Ideal Location for Your Business

Every business faces a unique set of circumstances, but as you think about location, be sure you’re considering factors like these:

1. Ease and Simplicity

One of the first things to consider is the ease and simplicity of starting a business in a particular state. Some states are so easy that you can do it online in a matter of minutes. Other states are so challenging that it takes a team of business attorneys to get you set up.

Florida is an example of a state where it’s extremely simple to launch a business. You can form an LLC in no time and get to work. On the other hand, a state like New Jersey almost encourages you not to create a business.

2. Taxes

Taxes can make or break your business. While a slight discrepancy might not matter when you’re only bringing in a few thousand dollars per year, it can mean the difference in millions of dollars as your company grows.

Consider that certain states – such as Iowa – have state corporate income tax rates as high as 12 percent, while other states – like South Dakota and Wyoming – have no corporate income or gross receipts tax. Some states charge three percent, while other states charge nine percent. It’s amazing how different the climate is in each state. Do your research and run projections based on the different rates across the nation.

3. Competition

Don’t ever choose a location without first doing some competitive analysis at the state, city, and neighborhood levels. Depending on the type of business you’re in, and what your biggest opportunities and challenges are, there are two schools of thought here.

One theory says to avoid markets where there are already established competitors and carve out your own niche in an untapped location. In doing so, you have a better chance of getting customers.

Another school of thought says to build right up on top of the competition. (Which is exactly what Home Depot and Lowes do to one another.) If the business is successful, then they’ve essentially provided you with market proof that this is a viable area. Competition is good and – assuming your confident in your product – there’s no reason you can’t come in and grab a portion of the market.

4. Real Estate Prices

If your business needs a lot of real estate – whether retail, office, commercial, or warehouses – the price of real estate makes a huge difference on your company’s bottom line. Real estate is a lot more expensive in Manhattan, for example, than Atlanta. Choosing one location over another could save you millions of dollars per year.

Focus on What Really Matters

Entrepreneurs often spend massive amounts of time and energy on things that don’t really matter in the grand scheme of things – such as the color scheme of a new product’s packaging or the right font for the logo. While there’s nothing wrong with being detail-oriented, your focus is far better spent on the issues that have a tangible impact on the success and viability of your business in the months and years to come. Location is one such issue – don’t take it lightly!