Locating and Setting Up Your Business Unit 4

Locating A Retail Business The right location for your business depends on: The kind of business you plan to operate The type of customer you want to reach Your location plan will help ensure that your product is available in the right location to reach your target customer Also consider whether you will have Inside sales Outside sales Inside sales: customers will come to your place of business to purchase the product Outside sales: you will travel to the customer’s residence or place of business.

Downtown Areas Advantages: Disadvantages: Downtown areas represents an easily accessible, central location Convenient location for downtown workers Disadvantages: Higher crime rates Traffic jams Lack of free or convenient parking Lack of customers in the evening Some downtown areas have lost business to neighborhood, community, and regional shopping centers

Neighborhood Shopping Centers Small shopping centers that serve a certain neighborhood Often called strip malls Generally consist of 3 to 15 stores Typically anchored by a supermarket Good location for stores selling goods/services that people need to purchase frequently Rent is usually low, ideal for small businesses Customers are mainly residents of the surrounding area who shop at the centers because of their convenience. It could be a disadvantage for your business if the only customers you have come from the immediate area

Community Shopping Centers Larger than neighborhood centers and offer a wider range of goods Designed to serve residents from many neighborhoods Apparel, furniture, toy, sporting goods, & electronic stores Usually have one or two major anchor stores Small department stores (Kohl’s JCPenney) Discount department stores (Walmart, Target) Large Supermarkets (Kroger, Publix) Super drugstores (Walgreens, CVS) Home improvement stores (Home Depot, Lowe’s) Although rent is generally higher than in neighborhood shopping centers but its still pretty affordable These stores can earn higher profits. Anchor stores advertise heavily and attract customers throughout the community. Other businesses in the shopping center typically benefit from the advertising

Regional Shopping Centers Designed to attract customers from an entire region. Usually have 40 to 100 stores (many are malls) They are anchored by two or more large department stores Macy’s and Nordstrom Offer a variety of products/services Majority of the stores sell apparel If your business requires a large amount of walk-in traffic to be successful, you may want to locate in a regional shopping center. Rents are high—making it difficult to earn profits

Super-Regional Shopping Centers The largest classification of shopping centers More than 100 stores offering an extensive variety or merchandise and services Anchored by three or more large department stores Serves a larger population base than the other types of centers Mall of America Very high rents; not as convenient Not recommended for new businesses

Stand-Alone Stores Can be located just outside of shopping centers or far away from other businesses Large jewelers, auto parts stores, and flower and garden centers Rent is often less expensive and no near competing businesses Often depend on drive-by traffic Must have plenty of parking, good signs, and effective lighting Advertising is often necessary People must have a specific reason to come to the business

Warehouses Some retail stores operate in warehouses Appliance dealers or furniture sellers Generally one of the cheapest rental facilities Few frills inside or outside Location here may allow you to charge lower prices than your competitors Potential customers may not notice or be aware of you Must advertise heavily

Locating a Nonretail Business Service Businesses For some, location considerations are the same for many retail businesses They are offering an inside service Convenience can be an important factor Customers never visit businesses that offer outside services Does not need to be in an expensive location but might be smart to have a location near customers

Industrial Businesses Industrial businesses (manufacturing and wholesale) ship their products directly to their customers Customers rarely see their facilities Do not need to operate in upscale locations Availability of good employees and low cost are the key factors in determining location

Industrial Parks A section of land that is zoned for industrial businesses only Usually located where space is less expensive, away from housing developments and downtown areas Communities sometimes subsidize rents in industrial parks in order to attract businesses

Enterprise Zones Areas that suffer from lack of employment opportunities Entrepreneurs may be eligible for favorable tax treatment based on the number of jobs their businesses create These tax benefits can be attractive However, they may not make up for the lack of an appropriate customer base Or the increased risk of crime in those areas

Home-Based Businesses Some of the reasons entrepreneurs decide to set up their business in their home include: Cost savings More freedom Convenience Tax benefits Disadvantages may include: Limited space Lack of separation between business and home-life Isolation from the business community Missed opportunities to network with colleagues Separate rent, utility costs, and maintenance fees for the business are eliminated; more capital available for promotional activities and the purchase of inventory Do not have to sign a lease agreement for the business, they are not subject to the restrictions and obligations of a lease Can work more flexible hours and does not have to commute to and from another location Operating a home office offers some tax savings. You can deduct a portion of your home’s expenses, such as mortgage, property taxes, and repairs and maintenance, against your business income

Starting a Virtual or Online Business E-Commerce: consists of buying and selling product/services over the Internet Offers an alternative means of conducting business transactions that traditionally have been carried out by telephone, mail, or face-to-face

Advantages of Online Businesses Quick and easy setup Allows for an immediate presence Cost savings Save money of rent, marketing, customer service, and order processing Large customer base Not limited by location No time restrictions Ease of data collection Collecting and managing info. about customer behavior is quick and easy Customer movements and selections on a website are tracked and used to improve customer relations

Disadvantages of Online Businesses Special expertise Takes knowledge of computers, programming, and the Internet Internet downtime Could lose a lot of time and money if website goes down Security breaches Hackers may steal consumers’ personal information

Online Business Precautions Do not use free web space More professional to buy your own domain Use a creative website design that appeals to customers Should reflect the image you want to project for your business Don’t use all text and no pictures Be aware of the loading speed If it takes too long to load, customers may get frustrated Don’t leave outdated information on your website Keep it current

Selecting Your Site Try to map and mark your trade area The geographic area from which you expect to attract a majority of your customers Indicate on the map all of the locations that might be appropriate for your business Use a different color or symbol to mark your direct competitors And other businesses that may attract similar customers

Location Type and Availability Identify which type of location is right for your business? Community shopping center? Stand-alone store? Downtown? Knowing this will help narrow down your search What spaces of this type are available in your trade area? Search through ads, websites, realtors, etc.

Evaluate the Location Compile a list of possible locations Inspect and evaluate each location to see how it meets your needs Factors to consider: Hidden costs, renovations, and taxes Convenience for customers Proximity to suppliers and vendors Local labor market (# of potential employees in area) Safety (crime rate) of the location Image projected by the location Room for growth in case of expansion Zoning laws

Lease or Buy Space Advantages to buying space Offers a bigger tax advantage Get a tax deduction on the interest you pay on your loan for the building The loan payment is typically no more than a lease payment Disadvantages to buying space Lacking to money to purchase property Do not want to be locked into a location Paying for upkeep and maintenance on the building Most businesses lease space

Commercial Leases When leasing property, a contract is required. There is a tenant and a landlord Three kinds of commercial leases: Gross lease: the tenant pays rent each month for the space occupied, landlord covers all property expenses for that space Property taxes, insurance on building, & maintenance Net lease: the landlord pays building insurance, tenant pays property taxes, & any other expenses Percentage lease: tenant pays a base rent each month, landlord also receives a percentage of the tenant’s revenue each month. Most common for prime retail locations Beneficial for both tenant and landlord Each kind of lease requires different levels of responsibilities 3. Landlord shares in the business’s profits, and the tenant has the advantage of a lower base rent, which can make rent more affordable during slow sales periods. Commercial lease agreements are usually long and complex. Consult with an attorney.

Compare Costs of Doing Business Calculate how much rent you will be paying per customer for each potential location Example: music store, two potential locations Downtown Shopping Center Rent per month $925 $1,100 Projected customer traffic per month ÷8,500 ÷12,000 Rent per customer $0.11 $0.09

Design the Layout Your layout must include enough space for employees, customers, merchandise, and equipment Space for restrooms, stockrooms, storage, and offices Create a Floor Plan Take measurements Draw the floor plan to scale Let 1 inch represent 1 foot of actual space Indicate the planned use of each area: Furniture, display cabinets, shelves, fixtures, and equipment Decide on a layout, outside sign, and window displays that match your image. Measure the height and width of the walls and any doorways and window frames. Measure furniture and other large pieces that will go in your business Your drawing will help you identify potential problems in your layout. It will also help you communicate with the people who may be helping you organize your space

Layout of Retail Business Visual merchandising: the process of combining products, environments, and spaces into an appealing display to encourage the sale of products/services The goal of your layout should be twofold: To attract customers to your store and keep them coming back To meet the needs of your business

Layout of a Retail Business Ways to send a positive message about your store: Appropriate lighting for the merchandise your sell Good lighting is important if customers need to inspect merchandise closely Use window displays to show off new merchandise or seasonal items Make the entrance inviting Leave at least 4 feet of aisle space Makes it easier to move around Use common sense when organizing the merchandise Customers should always easily find what they want Inventory and supplies should be well organized as well Create attractive in-store displays Use wall space wisely Wall space may be too high for customers to reach, but it can be used to display merchandise Place the cash register in a central location Customers should not have to search for a cashier

Layout of a Service Business Two types of service business: Businesses where people come to the business location to receive a service Restaurants, hair salons, automobile, repair services Businesses that travel to the customer’s location and perform the service on-site Exterminators, plumbers, cleaning services The layout of the first type should be considered like that of a retail business On-site service businesses rarely are visited by customers, so an attractive layout is not important Organization should be a major consideration so that supplies are easy to find

Layout of a Wholesale Business Customers of wholesale businesses are concerned with price and quality, not physical appearance Needs only to have an efficient and well-organized layout Wholesale businesses can do the following to facilitate shipping and receiving: Locate in a one-story warehouse Keep merchandise close to the shipping dock Store most popular items in the most accessible locations Be sure there are areas that can accommodate merchandise of all sizes Keep walkways free so that employees can exit quickly Store items safely (i.e. do not stack too many boxes)

Layout of a Manufacturing Business The layout should facilitate the production process Attractiveness does not count. Important considerations: Work teams should be situated close together Supervisors should be able to easily observe Their offices should be located near the employees Exits should be clearly marked and easily accessible Any hazardous materials should be stored safely Equipment and machinery should be positioned in a way that reduces the chance of an accident

Obtaining Equipment and Supplies Every business needs to analyze its operational needs and select equipment, supplies, and goods/services based on those needs. Equipment includes: Machinery, computers, cash registers, and furniture Inventory consists of the products that a business sells to its customers As well as the materials needed to make those products A business cannot operate properly without those things

Obtaining Equipment and Supplies To determine the equipment and supplies you need to start your business Your list should include standard items needed by all businesses and items specific to your particular business Be sure to list the minimum quantity you need right now, not the amount you might need if your business succeeds. Being overly optimistic could leave you with many bills that will be difficult to pay if your sales fall short of your projections

Activity Using your chromebooks, identify at least two vendors for each of the items on the standard equipment and supply list.

Identify Suppliers Vendors: companies that sell products and services to businesses. Valuable sources of vendor info. Include: Telephone directory advertising section Trade magazines, which carry vendor ads Trade associations The Internet Other companies in your industry SBA and SCORE

Evaluate Proposals How will you decide which vendors to go with? Before making a purchase, contact several vendors and ask them to quote you a price Quote: an estimate for how much you will pay for the merchandise/service Also ask vendors about the quality of their merchandise, their financing terms, quantity discounts, and shipping/handling charges. The lowest price is not always the best option if paying a little more means receiving better quality and service

Purchase Inventory Retailing, wholesaling, and manufacturing businesses must purchase inventory before they can open for business For retail and wholesale, inventory is merchandise (a finished product) For manufacturing, inventory consists of the business’s finished product as well as the parts that go into producing the finished product

Purchase Inventory for a Startup Business It is particularly difficult for owners of new businesses They do not yet know what their level of sales will be You do not want to purchase too much inventory and tie up your cash if you can’t sell it quickly You also have to consider the space to store inventory

Purchase Inventory for an Ongoing Business Once the business is up and running, you’ll have a better idea of how much inventory you need to operate To avoid running out of stock, you should track it and establish reorder points for each product Reorder point: a predetermined level of inventory that signals when new stock should be ordered how low you set the reorder point depends on: how long it takes your supplier to get merchandise to you how many units of the item you sell each month how important it is for you not to be out of stock

Activity—E-mail Etiquette Read the excerpt about e-mail etiquette on page 239 of your book Send an e-mail to a potential vendor asking for a quote for office supplies that you need for your new business Compose the e-mail you would send. Follow the guidelines given in the excerpt