CHAPTER 8

Location and Facilities

OBJECTIVES
8-1
8-2 8-3

8-4 8-5 8-6

Explain the role of convenience in choosing a location for a business. Differentiate the three categories of consumer goods. Describe the location options available for retail businesses, industrial businesses, professional offices, and home-based businesses. Discuss various aspects of commercial leases. List the advantages of buying a commercial space. Explain the importance of properly evaluating potential facilities and their surrounding environment.
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SUCCESSFUL BUSINESS PLANNING FOR ENTREPRENEURS South-Western Thomson

The Importance of Convenience

Location, location, location Being in the right place at the right time Relationship, or correlation, between time and place Convenience saves time, and time is finite. Time cannot be created or extended. There are only 24 hours in a day. Saving time is often worth money to customers.
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Convenience Theory

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Types of Consumer Goods

Convenience goods Shopping goods Specialty goods

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Convenience Goods
Convenience goods are products that people expect to find in many places. They are readily available in a variety of stores, including convenience stores, drugstores, and grocery stores. Businesses that sells convenience goods must be accessible to large markets.
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Shopping Goods
Shopping goods are products that are also easily found, although they are not as widely distributed as convenience goods. They are normally available in all communities in sufficient quantities to meet average consumer needs. Examples of shopping goods include tires, jewelry, popular fashions, and compact discs.

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Specialty Goods
Specialty goods are products that people are willing to go out of their way to buy. The purchases are usually planned in advance. Examples of specialty goods include wedding dresses, cars, and computers.

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Choose a Business Location

If the demographics of your local community support your business idea, you would be wise to locate there for several reasons.
1. You will be working in a familiar area. 2. There will already be a small nucleus of customers in place, made up of friends and acquaintances. 3. You may know bankers, attorneys, or accountants who would be part of an important support system for your new business.

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Retail Businesses
Downtown Shopping Districts Shopping Centers
Neighborhood shopping centers Community shopping centers Regional shopping centers Super regional shopping centers Big box store centers Discount outlet centers

Stand-Alone Stores
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Industrial Businesses
Industrial Parks Incubators

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Professional Office Space

Many types of offices are available, from small suites in stand-alone buildings to penthouses at the tops of skyscrapers. The spaces are leased, and expenses vary depending on location, size, and what services the landlord offers.

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Home-Based Businesses
Advantages
Limited costs No lease agreement restrictions and obligations Owner can be at the business site around the clock

Disadvantages
Space limitations Difficulty separating business and family activities Isolation from the business community
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Lease Arrangements
Lease agreements for commercial property are usually long and complex contracts that should not be viewed lightly. Commercial leases are written in terms of a stated base rent per square foot of leased space. Retail leases often include a percentage rent clause, which requires that the tenant pay additional rent if and when revenues exceed a certain dollar amount.
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Lease Arrangements (continued)

A lease agreement may include other charges besides rent. Examples of other charges
Common Area Maintenance (CAM) HVAC charges Tax escrow payment Insurance escrow Merchant association fee
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Buy a Business Location

Buying commercial property is rarely a good choice for a new business start-up. However, once the business is established and proven, it can be a very profitable step. Successful stand-alone operations in particular should consider owning the property from which they operate.

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Buy a Business Location (continued)

Advantages
No landlord to raise the rent or make demands Property value can escalate

Disadvantages
Large down payment Short term for loan

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Evaluate the Facilities

Size Structural soundness Image

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