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Where Do You Open Your New Business?

Filed under Business Planning. Fact checked on May 24, 2012.

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The ultimate success of the business can hinge on where it's located; there are many options to consider for finding just the right space for your startup.

Deciding where to open your new business is often one of the most difficult decisions a business owner faces: the ultimate success of the business can hinge on it. You'll need to decide whether to lease office space or work from home, while also considering the best possible geographic location for your business. Then there's negotiating a lease for your office or business establishment, if that's your eventual decision. And don't forget the possibility of using business incubators to locate and grow your startup.

Home Office or Leased Space?

Before you decide whether to lease office space or work from home, you have to determine exactly what your facility needs will be. In some cases, your facility needs will be such that you'll have to lease office or commercial space. In other cases, your facility needs may be minimal and you can work from home. 

If you have a choice, and all things are otherwise equal, you should probably work from home, primarily because it's a lot cheaper than renting office space and you will have less to lose if your business fails.

Unfortunately, your decision probably won't be that easy. The list below identifies some of the questions you should answer when making your decision:

  • Are you disciplined enough to work at home? Can you focus on the work that has to be done or will you be tempted to do other things around the house?
  • Will you be distracted by family and friends if you work at home?
  • Will customers come to your business? If so, will the customers object to coming to your home rather than a business location? Is there sufficient parking available?
  • Will you need employees? Is there adequate space for more than one person to work? Is there sufficient parking available?
  • What are the zoning restrictions, if any, that apply to your home business? Are home offices prohibited?
  • Will the home office deduction be available to you? The criteria for this deduction are very specific. However, tax considerations should not be the primary consideration, for many business expenses are deductible even if you do not qualify for the home office deduction.
  • Can you afford to lease an office at the outset of your business? Working at home could be much less costly.

For a further exploration of the choice between working from home and leasing office space, see our discussions of businesses that work out well from home and government restrictions on business use of a home.

Choosing the Geographic Location

An important factor in selecting a location is that you keep a long-term perspective. Site selection and acquisition can be a big investment. Choosing the right site now can avoid the costs of relocation in the future.

Here are some factors that should be considered when making your site decision:

  • Access to public transportation.
  • Availability of inventory and supplies.
  • Availability of utilities.
  • Availability of workforce.
  • Availability of physical plants.
  • Community services and amenities.
  • Cost of physical plant.
  • Location of competitors.
  • Parking facilities.
  • Proximity to markets.
  • Suitability of location for future expansion.
  • Taxes.
  • Traffic flow.
  • Transportation facilities.
  • Transportation rates.
  • Wage scales in the locality.

For additional information, see common needs of small businesses.

Leasing Office Space

If you decide that you want to lease office space and you've found a location, the next step is to negotiate a lease agreement for that location. A lease agreement is a contract between you and the property owner. Since this is a legal document, you should have your attorney review it before you sign.

Lease agreements will vary, so there's no way that you can anticipate every issue that might arise. That's why it's important to thoroughly review the terms of the specific document you're being asked to sign. All commercial leases should contain certain basic provisions with which you should be familiar.

Tools to Use

To explore those common elements and to learn more about what a good commercial lease should have in it, see the real property lease checklist in the Business Tools area.

A lease agreement is generally a long-term commitment for your business. View it as a planning opportunity and keep in mind the following points:

  • Getting out of a lease can be a costly endeavor. Be certain that the location and terms of the lease agreement are right for your business.
  • Being able to obtain additional connected space may be critical for your business in the future. If so, provide for future expansion in your lease agreement.
  • If the real estate market is soft due to an overabundance of commercial lease space or a poor economy, your bargaining power will be greater. In a soft real estate market, you may be able to secure favorable concessions.

In some situations, you may be better off buying office space rather than renting it. For more information on that decision, see should you rent or buy?

Working with Business Incubators

If working from home is not a possibility and you're operating on a shoe-string budget and can't afford to rent office space, consider a business incubator. A business incubator is a facility that provides economical space, business services such as typing and copying, some management advice, and possibly financial assistance.

Business incubators are owned and operated by a wide variety of entities and sponsors, including local government, universities, economic development groups, state government and a combination of sources. They're located throughout the country, and there's probably one near you. To find the one closest to you, contact the National Business Incubation Association.

As their name implies, business incubators are designed to nurture small businesses until they are able to exist on their own. The main benefits are the inexpensive office space and the access to business services.

Private companies are also in the incubation business. Be careful if you're considering one of those companies because they, unlike the nonprofit agencies, are in business to make a buck from you. They may try to force you into a long-term lease or other commitment that will hinder the flexibility of your business. Also, their managerial assistance may be useless or nonexistent. Before you agree to pay for a private incubator, talk to your attorney.

Also available are businesses that provide leased office space. They provide office space and all of the associated services, such as a receptionist, meeting rooms, online access, and the other things that you might need to run a business. They are an attractive alternative when a home office isn't feasible and an incubator isn't available or doesn't fit your needs.

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