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Choosing the wrong location can impede business success before you really get started. As you’ll see, there’s a lot that goes into finding the ideal space. Another factor that can send your business on a downward spiral is the failure to maintain financial records and manage cash flow. Without an accounting system that gives a clear picture of how your business is faring, how can you expect to succeed?
Choosing a business location requires careful consideration. Understandably, many business owners place importance on cost (needs to be affordable) and aesthetics (needs to appeal to customers). However, before settling on a home for your new venture, consider all of the following factors. Poor choice of location could ultimately be your business’s downfall.
For leased spaces, rent will account for the bulk of your facilities expense but don’t forget about associated costs like utilities. Utilities are included in some leases, but not all. If they’re not included, contact the utility companies to obtain the previous year’s usage and billing information. Older buildings might cost more to heat and cool. Ask if you’ll need to pay a security deposit so that you have a better idea of what your total move-in costs will be. Some utilities may not require a deposit if the payment history for your home service is solid.
To ensure that the location is within your budget, inquire about any additional costs. If the building provides janitorial service, do you have to contribute to the cost? What about the cost to maintain the grounds? Before signing a lease or purchase agreement, make sure everything that affects your monthly payment or total cost is spelled out. You don’t want any unpleasant surprises later.
Defining your target market was an essential step in completing the market analysis section of your business plan. Is it important that your location be in close proximity to your target market? If yes, does the demographic profile of the area suggest that a sufficient percentage of the population matches the characteristics of your target market?
You’ll want the community that you’re located within to have a stable economic base, which is especially important if your customer base is local. Be wary of communities where the economic base depends heavily on a particular industry. A downturn in that industry could negatively impact your business.
If you’re moving your business to a new city, find out about population trends there. The U.S. Census Bureau provides a wealth of information on population trends and statistics. You can also get demographics information from City-Data and Proximity.
The ideal location will be easily accessible for customers, suppliers, and employees. Can customers easily find you? Is the facility accessible to people with disabilities? Make sure there’s ample parking for customers and employees and that the parking lot is well-maintained and well-lit. Will customers and employees have to pay for parking? Potential customers may not shop with you if they have to pay for parking or worry about expiring parking meters.
If the location is on a busy street, will cars be able to easily get in and out of your parking lot? Will suppliers and small-package couriers be able to easily and efficiently make deliveries to your business? If you expect to receive large shipments on pallets, is there a loading dock and adequate roads for trucking companies?
If you’re considering leasing space in an office building, make sure you’ll have the level of service and access you require. Can the building only be accessed on certain days of the week and during certain hours? If the accessibility meets your needs, is heat and air conditioning left on during accessible hours? You don’t want to have access on weekends only to find that the space is freezing in the winter and sweltering in the summer.
Foot traffic is extremely important for most retail businesses. You don’t want to be in an obscure location where potential customers are likely to bypass you, like a remote corner of a mall. On the other hand, if you operate the type of business that requires a certain level of discretion, a high-traffic area might not be desirable. Before committing to a location, monitor the traffic at different times and on different days to ensure that the traffic volume meets your needs.
Is the location consistent with the style and image you want to project? Are you offering luxury products or a high-end service that require a formal, elegant setting? Or is a laid-back and casual vibe more appropriate for your business? Do the surrounding businesses fit your image? Think about the location from your target market’s point of view. If customers won’t have to visit your location (i.e. online business), aesthetics will be less of a concern.
It’s always a good idea to check out the history of the location you’re considering. Inquire about the previous owners/tenants. What types of businesses were previously in the space? You’ll want to know if these businesses faced challenges that you might inherit, especially if you’re opening the same type of business. If several similar businesses failed, this might not be the best location for that business type.
If you find that several different types of businesses didn’t last long in this location, you need to determine if the problem is attributable to the businesses or to the location.
Sometimes it’s good to be located in an area with similar businesses — especially in industries where comparison shopping is commonplace. For example, you’ll often find car dealers in close proximity to one another. This practice could work in your favor if a potential customer set out to visit a competitor and, upon seeing your signage, paid you a visit as well. You may also catch the overflow from similar businesses. Have you ever gone to a restaurant and the wait time for seating was too long? If you were really hungry, you likely settled for a nearby restaurant with a shorter wait time.
If similar businesses are located nearby, perform a competitive analysis to see if you can gain a competitive edge by outperforming your competitors. Do you offer something that they don’t? Can you gain enough of a market share to be profitable? Make sure there are enough customers for you. When analyzing the competition, take into account both direct competition (offers a similar solution to a customer’s problem) and indirect competition (offers a different solution to a customer’s problem).
When it comes to non-competing businesses, see if there’s an opportunity for you to benefit from the traffic generated by nearby businesses. Their customers (and their employees) could become your customers. For example, there’s a high probability that clients of a gym would patronize a nearby health food store.
Is there an adequate selection of shops and restaurants in the area so your employees have some place to eat or shop at lunchtime? For employees with children, is a day-care facility conveniently located?
The space has to work for you and your employees. Does the location provide the amount of space and rooms that you need? Can you make renovations to the facility?
Do you need a kitchen or room for specialty equipment? Do you need office space, retail or warehouse? Retail is generally the most expensive of the three.
Does the area have an income tax? Sales tax? Income taxes and sales taxes vary greatly from state to state. Is the area friendly to entrepreneurship? Is the location you’re considering close to the state line; are tax rates substantially lower in the neighboring state? If yes, you might consider moving your business to a new state.
If you’re planning to purchase your space, are property taxes in the area reasonable? Are they within budget?
Do zoning laws or ordinances restrict the operation of your business type in this area? Zoning laws might restrict building use for commercial purposes, hours of operation, noise levels, signage types, and chemical usage. Make sure your business is allowed in the area before you sign the lease or purchase agreement.
You’ll also want to know about ordinances affecting neighboring properties. You want to ensure that questionable businesses won’t be opening up next to your family-friendly business.
Before finalizing your purchase or lease agreement, get a feel for the community. Read the local paper to get a general vibe of the area. Obtain marketing research reports from the city’s business development office to get a sense of the economic climate.
Speak with other small business owners in the area. Ask them if they’ve had success and if they think your business would do well there (this may work better with non-competing businesses). If they’re responsive to your inquiries, it’ll give you an idea of how receptive established businesses are to businesses that are new to the area.
You also want to ensure that you, your employees, and your customers will be safe. Find out what the crime rate and common crimes are in the area. High crime rates could also put your merchandise and building in jeopardy and cause you to pay higher insurance premiums. What are insurance rates for the area?
If you’re considering a space in an older building, is it properly wired to accommodate your technological needs? Make sure the building’s electrical system can handle your computers, printers, servers, etc. now and in the future. Can you offer free WiFi to customers/clients as they shop in your store or wait in your lobby?
Will you have to do extensive modifications before you can open for business? You may want to hire an engineer to ensure that the building is up to code.
When choosing a location, consider the potential growth of your business. Think about how the space can grow or adjust with you. Does the location allow for hiring more employees or stocking more inventory in the future? Are you able to rearrange the layout? Can you expand the building? A small space might be less expensive for now, but its size might be limiting in the long run. For example, as your business grows, you may need a larger retail area to accommodate the increase in customers.
Finding the right location to house your business can be a formidable task. If you need help in your search, here are some resources to consider:
Before talking to a commercial realtor, figure out the monthly rent payment your budget will allow. Remain steadfast against attempts to talk you into more than you can afford.
As you’re searching for business locations that’ll fit into your budget, hopefully your budget (which is essentially a financial projection) is part of an overall financial management system. Like a personal budget, your business budget takes into account what you expect to bring in (income) and what you expect to pay out (expenses).
If you’ve already completed the financial projections section of your business plan , you’re off to a good start. Establishing sound accounting practices early on – tracking income, expenses, and cash flow – will contribute to the financial health of your business. You’ll be able to tell, at a glance, if your venture is profitable. You’ll also know ahead of time if a cash flow crunch is on the horizon.
In the early stages of operating your business, you may be able to use a simple bookkeeping system to record income received and expenses paid. However, as your business prospers and transactions become more complex, you may find yourself overwhelmed and in need of professional guidance. A bookkeeper can help you keep your financial records in order so that you can foresee any issues, and stay out of trouble with the IRS. There are also a number of accounting software programs to help you automate your entire accounting system. Quickbooks, FreshBooks, and Zoho Books are all highly rated by PC Mag.
The following accounting practices will help keep your business in the black and increase your chances of reaching your long-term goals.
If you think you can’t afford a professional bookkeeper or accountant, consider that you’ll only need their services on a part-time basis. You may only require the accountant for strategic planning and at tax time. The bookkeeper will mostly record and classify your income and expenses but may also prepare your financial statements. All of which won’t require a full-time commitment.
Not only will these professionals keep your financial records in order, but the accountant will help you to take advantage of all tax deductions that you’re eligible for. You won’t have to wade through pages of IRS regulations. Both professionals will save you time so that you can concentrate on what you do best – running your business.
Accounting software is a useful tool for any small business type. If you feel comfortable using it, you can categorize and track your income and expenses, and generate reports. You should be able to link your bank account or credit card to the program to easily pay invoices. If you don’t feel comfortable using the software on your own, you can grant access to your bookkeeper or accountant, if you decide to hire a professional.
QuickBooks is the most popular accounting software program and offers a ProAdvisor program to help you find a local QuickBooks expert should you need one.
A business bank account will help you to clearly distinguish between business and personal expenses. Try not to use your business bank account to pay personal expenses. You’ll save time by easily recognizing deductible business expenses. If you used funds from your personal bank account to cover start-up costs, clearly note that this was for business purposes.
Having a separate bank account for your business has other advantages beyond recordkeeping. If you operate a limited liability company (LLC) or corporation, your personal funds will be protected from any debts or obligations of the business.
There may be instances where you make payments from your personal bank account to cover expenses that are partially for business use. For example, you may operate your business from home and use your personal car for business. If this is the case, only the portion that’s used for business can be deducted as an expense on your tax return.
To maximize the tax deductions you’re able to take, carefully track all business expenses. No matter how small, they can quickly add up. Categorize each expenditure as it occurs to make it easy to file tax returns and prepare financial statements.
To minimize the number of paper receipts you’ll need to keep, use a business credit card for expenses when possible. Accounting software can store copies of receipts as well as checks and paid invoices.
To ensure that you don’t face IRS penalties for underreporting income and underpaying taxes, keep track of and report all income. Of course, revenue from sales is considered to be income but did you know that if you negotiate with a creditor to reduce debt, that’s considered income and you’ll owe taxes on the amount?
To maintain healthy cash flow, send invoices immediately and offer early payment discounts to increase the chances of prompt payment. Send friendly reminders as it gets close to the payment due date. Make it easy for customers to pay you promptly by offering multiple payment methods such as online payments.
Regularly monitor your receivables accounts to avoid having them get too far behind. This will save you time at tax time and help you avoid overpaying taxes.
Closely watch the amount that you’re paying employees (including yourself) as labor costs can account for as much as 70% of total business costs. Labor costs include overtime, incentives, payroll taxes and related taxes. If you use accounting software, it’ll help you accurately calculate and pay payroll taxes.
To avoid a cash flow crunch, plan for large expenditures such as major equipment, system upgrades, and the inevitable income tax bill which is due the same time each year. IRS Section 179 will let you deduct up to $1 million of qualifying business property that your business buys or finances and up to $2.5 million of equipment purchases. So, although you’ll experience a large initial outlay, you’ll later reap the benefits of this IRS provision.
Maintain inventory records that include purchase dates, prices, sale dates and sale prices. This will help you to have an accurate inventory value on your books and help you to know when you need to reorder stock. Your accounting software may be able to help with this. QuickBooks Online has an integrated inventory management component.
To stay ahead of the game, use financial projections to anticipate what your income and expenses will be next year, the year after that, and the year after that. Financial forecasting can be daunting for non-accountants but your accounting software and hired accountant can help you to develop realistic financial projections that take inflation (expenses) and price increases (sales) into account.
Financial projections are essential for managing cash flow as they’ll help you to know when you need to seek funding such as a business loan or line of credit .
For a small business, unreliable cash flow can have dire consequences. Cash flow problems can make it difficult to make payroll, buy inventory, and pay rent. There are many reasons for cash flow issues: sluggish sales, late-paying clients, seasonal business, and unexpected expenses. As mentioned above, financial projections (specifically a cash flow forecast) will help you to predict problems before they occur so you can take steps to mitigate them. Most accounting software will use your existing financial data to generate cash flow statements and forecasts. Here are some best practices for avoiding a cash crunch.
Unpaid invoices are a major contributor to cash flow issues but there are ways you can close the gap between the time a job is completed and when you receive payment.
Create a system (or use accounting software) that allows you to easily monitor invoice age. For outstanding invoices and those that are close to payment due dates, send reminders.
Negotiate with creditors for better payment terms like net-60 or net-90. Once you establish a solid payment history, creditors may be more receptive.
Having contact information (name, email) for the person who is directly responsible for paying your invoices can help you get answers about when to expect payment. You’ll also have someone to contact if payments are late.
If sluggish sales is the cause of your cash flow issues, come up with ways to give sales a quick boost. Do something besides just offering discounts. Offer incentives for referrals, hold contests to increase customer engagement, or use a loss leader to stimulate sales of more profitable products or services.
Maintaining cash reserves in a savings account or interest-bearing checking account is one way to protect your business from cash flow problems. This financial cushion should ideally be enough to cover 3-6 months of expenses. If this seems like a formidable task, make small contributions to your reserves until you’ve reached an amount that you’re comfortable with and that makes sense for your business.
A business line of credit is another source of cash reserves. Unlike a traditional business loan, a line of credit works similar to a regular consumer credit card – you draw against a revolving line as you need to. It’s an ideal solution for quickly meeting short-term working capital needs. It’s best to apply before you need the funds. That sounds counterintuitive but you’ll be in a better position to comparison shop for the best terms.
When considering a business location, cost is an important factor but there are other factors that are equally important. For example, no matter how attractive the price is, if the location isn’t consistent with your company’s image or if it’s difficult to access, it’s not a good location.
Depending on your business type, running your startup from home may be a viable option. Operating as a virtual company will reduce your overhead which positively affects cash flow. Cash flow is important for all businesses, but it’s critical for startups. Operating from home will also allow you to take advantage of certain home office tax deductions.
Whether you establish a virtual company or traditional brick and mortar, implementing sound accounting practices is essential to your business’s success. The product or service you offer is the core of your business but finance is the backbone.
If you’re intimidated by the idea of financial statements and projections, seek the guidance of financial professionals. Their involvement in your business will save you money in the long run and free you to focus on running your business. Accounting software, such as QuickBooks, is another option for handling your business accounting. By staying on top of your finances, you’ll ensure that your business thrives for years to come.
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