Photo by Joshua Rodriguez
Originally Posted On: Opening a physical location: 6 things to consider | QuickBooks (intuit.com)
Picture this: You, in your very own brick-and-mortar storefront! Customers are there in person, experiencing everything you’ve worked so hard to build and getting to know you and your product. No anonymous purchases from someone you never meet. No shipped returns because something isn’t a fit.
It’s a far cry from a URL and an “add to cart” button.
There’s no denying that shopping online is an important convenience—and sometimes even preferred. But if your business has found its legs in e-commerce, you may be wondering: Is it time to open a physical location?
Expanding into a physical space is a big decision, and it’s also a personal one. Much like anything else, it’s up to the business owner to weigh the pros and cons and land on the best choice for their business.
What sorts of things should you consider when making this decision? And, if you do want to open a physical shop, what should you look for? Here’s what you need to know.
Should you open a physical location? 3 questions to ask yourself
The most difficult part of this decision is figuring out if now is the right time to open a brick and mortar. Is your business ready?
Ask yourself these three questions, and really take the time to think through your responses. Grab a notepad and write out your thoughts if you need to. These questions will help you consider all of the factors that should play an important role in your decision.
1. What are your future plans for the business?
Purchasing a building or paying rent is a big expense, so moving to a physical space should be a long-term decision for your business. With that in mind, where do you envision your business heading in the next year? What about the next five years? Or 10 years?
Maybe you’re happy with the current state of your business and don’t anticipate aggressively chasing growth. If you’re perfectly satisfied maintaining your existing business, then a physical location might be more than you’ll need.
But maybe your mind is swimming with big ideas to grow and take over the world. Let’s say you’re a jewelry maker who has sold your products primarily in online marketplaces, but now you’re ready to have your own boutique. You want to have a space where customers can try your jewelry on in person. Not only that, but you’d also love to host jewelry-making workshops and other events. Those goals will require some extra space.
The future is impossible to predict. But it’s worth thinking about what’s on your roadmap. That will help you make the right decision not just for the business you have today—but the business you’ll have next year.
2. Does a physical space make financial sense?
You can’t make any sort of business decision without considering finances. Sure, you might want a physical location—but that ultimately doesn’t matter if you can’t afford it.
Take a look at your budget. Do you have enough left over each month to increase your overhead costs this way? Keep in mind that there are a number of ways you could pay for your location, including:
- Rent: You’ll pay monthly, and rental agreements are typically shorter term (like 30 days at a time).
- Lease: You’ll pay monthly, but lease agreements are longer term (usually at least one year).
- Purchase: You’ll pay monthly on a commercial real estate loan or commercial mortgage to work toward owning the property.
Your rent, lease, or loan will be the bulk of your expense, and renting office space costs anywhere between $8 and $23 per square foot. However, it’s also worth considering the other costs associated with moving into a physical space, including:
- Utilities: You’ll likely need everything from internet access to heat.
- Furnishing and supplies: If the space doesn’t come equipped or furnished, you’ll need to invest money to purchase all the furniture, materials, and decor needed to complete the space.
- Amenities: Some spaces charge extra for amenities like a shared mailroom or security measures.
- Insurance: You’ll want the peace of mind of your own business liability insurance coverage. In fact, your landlord might require it.
- Commuting: This won’t be as big of a deal in less urban areas. Still, keep in mind that commuting to a building will require an added investment in both time and money when compared with working from home.
The cost of these things will vary based on a variety of factors—like your geographic location and the type of your business. Do some research to assign estimates to each of them. The more realistic you are about your expected costs (and whether you can afford them), the more confident you’ll feel making a decision for your business.
3. What other options could you explore?
Moving to a physical space is an exciting proposition, as it’s yet another thing that proves your business is growing. But keep in mind that getting your own location isn’t the only option when you’re eager to move beyond your home office.
It’s worth considering what other possibilities exist—especially since some of them might be more cost-effective or a better fit for your business model. For example, you could:
- Sign up for a coworking space that gives you a conference room to meet with clients and access to other equipment and amenities
- Participate in a local business incubator or accelerator that offers office space
- Research other shared options like commercial kitchens
- Purchase or rent a space where you can have a smaller presence, like a kiosk in a mall or a booth at a farmer’s market
- Partner with other businesses that have their own physical space, such as by selling your pottery in a local boutique
You might decide that you want to pursue some of the above options and also secure your own physical location. That’s great! The important thing is that you consider all of the choices that are available to you.
6 considerations to make when location scouting
You’ve reflected on your answers to the three questions, and you’ve landed on your decision: You’re going to make the move to a physical location. Congratulations!
Now the fun begins: finding the perfect spot. If you’re lucky, a huge assortment of different options will be available to you. So how do you choose? Here are six criteria to consider.
First things first, you need to consider how many square feet you’ll need. Remember, don’t think only about your current business but also about what your plans are for the future. If you plan to add a dozen new team members in the next year or so, you’ll need room for them.
It’s also important to think about the type of space you need. Perhaps you need a storefront, but you’d also like it to include a private office where you can shut the door and handle administrative tasks. Or maybe you need some included warehouse space to store your inventory.
Think through the size and functionality of your desired space. That alone will help you weed out a number of options.
Next, it’s time to get specific about the features that you need. What unique attributes should your physical location have?
Do you need a parking lot that can accommodate large trucks for deliveries? Plenty of natural light to take your product photos? Is it important to you that you’re on the first floor?
Those are all things that you should add to your list. It’s also smart to distinguish between your must-haves and the things that would be nice but aren’t absolutely necessary. Finding real estate always involves some compromise, so it’s helpful to know where you’re willing to bend.
You’ve probably heard the “location, location, location” cliché. There’s a reason it’s so oft-repeated: It’s true. The location of your new space is going to carry a lot of weight.
Where do you want to be located? Do you want to be on the main stretch of your downtown area to get a lot of customer foot traffic? Do you want to be close to your manufacturer or supplier to reduce transportation costs and logistics problems? Do you want to be near where your target customers are—like putting your sandwich shop near an office park?
Don’t forget to consider your competition, too. You probably don’t want to put your barbershop next door to another barbershop. When you find a location that you think could be suitable, make sure you really get to know the area. You need to be familiar with everything around you and how it might impact your business.
Understanding the various restrictions and limitations of a space isn’t exactly fun. Still, it’s important to make sure that you aren’t setting yourself and your business up for headaches and potential problems.
Are there zoning rules or disputes that could impact your use of the space? Ask your real estate agent or the building’s owner what you should know.
Additionally, are there restrictive covenants or rules about the types of customizations you can make to the space? Those could have a big impact on your decision. So, make sure that you ask to review any paperwork or guidelines so you know what you can and can’t do.
Business owners work hard to cultivate a brand—you’d hate for the reputation and location of your first physical space to undermine all of that.
For that reason, consider what the potential space says about your overall business. If you’re allowed to make changes, look past any cosmetic problems (a little bit of paint goes a long way!). Instead, evaluate the aspects that can’t be easily changed—like the qualities of the area itself.
For example, say you’re looking for an office space for your marketing agency. Renting a space in a strip mall between a tobacco shop and a payday loan store might not be the right presentation for your brand. Or does the area have a reputation as being unsafe? You might want to rule that one out too.
It’s also worth asking about the history of the space itself. Has there been a revolving door of businesses similar to yours that have quickly folded or vacated from that space? You don’t want to be unnecessarily superstitious, but it’s smart to figure out why they haven’t stuck around.
You might find a space that fits all of your criteria, but you still need to use your budget to make responsible decisions for your business.
It can be tempting to toss those numbers aside when you find a dreamy space that checks every single box on your list. However, it needs to be a financial reality for your business. Getting into a space you can’t afford will only cause more stress and hardship. And that’s the exact opposite of what you’re trying to accomplish by moving into a new location.
Treat your budget as a hard rule, rather than a suggestion. Save yourself a ton of heartache by avoiding looking at any spaces that don’t fit what you’re willing to spend. There’s no point in torturing yourself by considering unaffordable properties.
Find the right spot for your business
When you’re outgrowing your home office or your garage, it could be time to open a physical location. But making your decision and then finding a suitable space can feel overwhelming.
Like any business decision, this one deserves some careful thought and consideration. Perhaps you’ll find that your business is best suited for a fully digital environment that you run from your kitchen counter—and that’s OK! There isn’t one right or wrong way to do things.
Use this as your guide, and your business will land in the place it’s meant to be.