Site selection can be crucial to the success of any business

By Mike Green, Managing Director, Harcourts International

This article appeared in Issue 3#5 (July/August 2009) of Business Franchise Australia & New Zealand

So many business owners seem to focus on the products or services they plan to offer the market when setting out to establish their new business. This is all well and good, but my experience tells me that choosing the right site from which to run the business is equally important. 

Take for instance a business that plans to sell brand new Mercedes vehicles. They would be ill advised opening up a lavish showroom in a back street of a down-market suburb. Similarly, a panel beater would hardly consider hiring space in a busy shopping precinct along the beach front at Surfers Paradise on the Gold Coast. 

These may be extreme examples, but they do illustrate my point. As the old cliché goes, there is more to it than meets the eye.

My experience in the real estate business has always brought the finer points of selecting a commercial site into sharp focus, and it is this that I want to talk about now.

Apart from the obvious considerations, like whether or not you can afford a particular site and how big it should be, there is far more to pay careful consideration to when setting out to look for somewhere to run your new business from. 

To begin with, think first about what your main focus will be on once your business is up and running. That's right - you will need to generate leads. And you will need to generate them on a continual basis. Lead generation never stops. 

So what implications does this fact of business life have for you, the business owner? For starters, it means that you have to bear this in mind, not only when developing your business plan, but when selecting the location for your business and the site from which to run it from. 

Having the right location can be invaluable when it comes to generating business. This could work in your favour and assist with your marketing efforts. Think hard about the neighbourhood. Remember, a bad neighbourhood will detract from business, no matter how good your site is. How close are your competitors? Is there parking nearby? What about public transport?

Once you have examined the location issue, you need to delve a little deeper. You need to give careful consideration to some other important factors. Take advertising, for instance. Building signage could very well be your most important form of advertising, especially if you are in the fast food business or one that needs high road-side visibility. How suited to signage is the site you are considering? Are there trees that might block the signs from view to passing traffic? 

Can you use the windows effectively for window displays? This is why you will find real estate agencies situated in prominent locations on busy roads or walk ways. There is simply no doubt at all that a good site attracts large numbers of lookers at windows.  

Research by KPMG indicates that two-thirds of shoppers prefer to shop in suburban strips rather than big malls. But bear in mind that not all shops do well in strips. Butchers and fruit shops particularly have lost out to the supermarkets in big malls.

Strip shops have the advantage of being popular with shoppers. They are also relatively cost effective to rent. Parking can be a problem, depending on location, but they do have the advantage of being local – something many shoppers like to support these days. 

Many businesses are not suited to being set up in a strip shop. For them, shopping centres are more appealing. Higher passing traffic and the ability to attract customers who had just shopped in the centre is a huge plus here, but this does come at a cost; higher rent and quite often, regular shop-front upgrades, which can be very costly.   

Sites in shopping centres usually come with complex leases which can tie a business down for five years or so. How secure do you believe your business plan to be? Being saddled with a long lease after closing your business can be extremely costly, both in monetary as well as physiological terms.

Of course, not all shopping centres are the same. Some are extremely up-market and are designed for top-of-the-line department stores, exclusive boutique businesses and select shops only, while others are quite mundane. Here you will find your average sea-side neighbourhood centre complete with beach shop, ice cream parlour, fruit market and barber shop. The inclusion of a cinema can dramatically increase traffic and can be a boost for any business. 

Some shopping centres have restrictions as to the type of shops they will allow in. And here I am not talking about two shops of the same or competing type, but rather whether or not you are part of a major national franchise or not. These centres can be quite choosy as to who they will rent to. 

Another option when hunting around for a suitable business site is to consider what is known as the bulky goods centres. These are centres that specialise in shops or stores such as home improvement businesses, DIY outlets, furniture stores and bedding specialists. If you are in this field, the advantage of establishing a presence in locations such as this is that it is convenient for 'hot prospects' who know what they want to buy but just need to select the best possible purchase for their particular needs on the day. It allows you to do what you do best – sell. You see, shoppers like these usually don't want, or have the time, to traipse around town looking for options; they prefer to go to one location where all on offer is available at the same time, in the same place. It's all about convenience, and in business, this is one of the important factors to bear in mind. Ever wondered why so many real estate agencies are grouped together in close proximity to each other, or that there are often two or three service stations over the road from each other? 

Once you have whittled down the options and settled on a few possibilities, your next task will be to secure the best deal you can. This is important because your rent will be a fixed overhead and probably a major part of your monthly cash flow situation. Ask for incentives, particularly if the site you are after has been vacant for a while. The agent you will be dealing through will be keen to find the best possible deal for you as well as the landlord, so ask. Remember, every landlord wants stability and a profitable business renting his or her site. The last thing they want is a longer vacancy period than necessary because not only does it impact on their bottom line, it impacts on the public's perception of the centre or shopping strip as a whole.

The final category I would like to touch on briefly is that which involves a site in a residential area. Working from home is becoming more popular by the month, and for good reason. Check first with your local council if you are in this category because there are some restrictions which you have to bear in mind. Certain categories of business are barred from suburban areas mainly due to noise or traffic restrictions. Signage, too, may be a problem. Operating a hairdressing salon or accounting agency from your home usually won't present a problem, but running a light engineering workshop probably will. 

Site selection is one of the determining factors for the success of any business. Take it seriously, do your due diligence and work with your real estate agent. The future viability of your business could very well depend on it.

Mike Green has over 20 years of experience in the real estate industry. He is the former owner of Harcourts franchise, Mike Green Real Estate Ltd (Auckland).

As Managing Director of Harcourts International since December 1999, Mike is responsible for the overall operation and direction of Harcourts' group of companies, and with Paul Wright, is one of two owners of Harcourts International Ltd.