3 common mistakes in picking a location for your small business

By Benjamin Pimentel/NerdWallet

"Location, location, location" isn't just a mantra for buying a home. If you're a small business owner with a bricks-and-mortar operation, you should be repeating that to yourself too.

That's because picking the spot for that restaurant or boutique could determine the success or failure of your small business.

Technology has made making that choice easier and faster, says Keenan Baldwin, co-founder and chief operating officer of Tampa, Florida-based SiteZeus, which uses data analytics to help companies find the ideal location for their business. "Any data set you can think of out there is in our database," Baldwin says.

Big Data is a growing field. SiteZeus' competition includes Tango Analytics and Buxton, which are using new capabilities in quickly processing huge volumes of information for business needs.

"There's so much information out there that you have to take into consideration when looking at locations," Baldwin says.

Selecting a location remains challenging for many small businesses. Baldwin identifies three common mistakes:

Having only a vague idea who your customers are

"Who is the customer?" is the main question you should ask as you're setting up your small business. Knowing your customer will help you answer the equally important question of where to find that customer.

"You need to identify where those potential customers are, and what their patterns are," Baldwin says.

And it's easy to get it wrong, as Baldwin says he did. Before helping launch SiteZeus, he helped start a yogurt shop called Yogurtology that initially was very successful.

He says his co-owners were fortunate to open in good locations, such as near schools and a shopping center, which translated to strong sales. But they "didn't go through the process of understanding why those locations were doing well," he says.

When they followed the same formula for other shops, he says, it didn't work. "We were left scratching our heads and asking, 'What happened here?' " he says.

It turned out that in the newer locations, the target customers' income profiles were different and they were not readily drawn to the yogurt shops.

Ignoring issues of access and other needs

Having a clear idea of how and when your customers would visit your shop is crucial. This means focusing on issues of parking, traffic and signage.

"Do you need parking?" Baldwin says. "Do customers have to park and walk? How much time do they want to spend in the store or restaurant?"

He says SiteZeus' technology can provide insights into the impact of a variety of location factors, including traffic patterns, demographic information and the presence of bus stops and schools.

The U.S. Small Business Administration says small business owners should also ask, "Is the location consistent with the image you want to maintain?" and "Are the businesses around you complementary or competing?"

Not being prepared to negotiate a contract

Let's say you've found an ideal location and you're ready to sign a lease.

It's important to have an "understanding of the threshold of rent you can pay based on your business model," Baldwin says. "There are a multitude of factors, and you may be lacking in expertise in lease negotiations. They can be taken disadvantaged of."

The SBA cautions small business owners to be aware of all financial considerations, including hidden costs. Factor in expenses for renovation, decorating and IT system upgrades because few spaces are business ready.

As with all business decisions, selecting a location requires thorough research. Consult with the small business community, asking advice from other owners and potential co-tenants, and check free government databases. By doing so, you'll feel more confident you've chosen the right place.