Locating the Business

What affects location choice?

The location of a business is very dependant on the stakeholders within a business. A stakeholder is an individual or group with a direct interest in a company’s performance. A stakeholder can be an employee, customer, shareholder, owner and does not have to have a say in how the business runs but it is generally considered that it is a good idea to consider the needs of different stakeholders to the business.

  • For example, being in a city centre location might be perfect for your employees since they are able to make use of the good transport links and there are plenty of customers around. However, the office costs more and the car parking charges mean that customers are unable to spend the time with you that they need to complete their business.

Quantitative Factors

  • Costs - Obviously, when a business starts up, the costs are kept to a minimum to ensure that a profit is gained from business activity. However, it is a delicate balance between choosing the lowest costs and not causing damage to the business in the long run.
  1. For example, the choice of building to rent (fixed cost) will determine one monthly outgoing, the higher this is, the more money has to be made to cover the costs. However, if your business needs to be located in an expensive area to allow you to be close to your customers then this might be a necessary cost to the business. The cost of staff differs dependant on the location, this might be because of the cost of living in the area of the skills of the staff available to you. Whatever the reason, choosing an area without the correct skills will mean that it is more difficult and expensive to attract staff to run your business activities.
  • Government Support- Some areas are targeted by the government to develop the business in the area, by gaining this government incentive, it might be possible to recruit and train people with the correct skills in a new (cheap) area.
  • Infrastructure - The transport links to a business are often very important, whether this be allowing employees to get to work, customers to reach the business or raw materials to be delivered / transported from the business premises, transport can allow the business to add value in terms of speed and flexibility.
  • The Market - This is generally the most important factor when starting a business, the entrepreneur wants to be close to their customers. However as a business grows the customer base will grow and disperse from the business and the cost of transporting products to new customer might become a major disadvantage to the business.
  • Technology / Teleworking - As the Internet plays an ever more important role in the way companies are run, it is becoming more important for the business to be located in an area with good bandwidth. This allows companies to locate to a cheaper area while still being able to carry out their business, but instead of customers coming through the door, they contact through the Internet

Advantages of Teleworking

  • Reduced costs for premises (working from home)
  • Reduced risk, no commitment to lease / rental
  • No traveling time
  • Can plan around family and other commitments
  • Family are on hand to help if necessary

Disadvantages of Teleworking

  • Difficult to separate work from home life.
  • Some initial setup costs for the house
  • Loss of the social aspect of work, entrepreneur feels lonely
  • Hidden costs (house insurance, council tax etc.)
  • Might be hard to avoid distractions (children, pets, etc.)

Qualitative Factors

Not everything can have a numerical value applied to it and when choosing a business location some factors might be purely personal. For example, if the entrepreneur wants to change their quality of life, they might locate to an area of the world they love, near to schools for their children, to somewhere sunny. Other factors such as local planning laws and regulations and the availability of land for expansion might play a large role in the choice of location. In the end, the choice of location could take a number of the factors into account, it will also be very dependant on whether the entrepreneur is creating a product or service since these will require more thought on some factors than others.

  • For example, a service is likely to need to be near the customer and so might choose a location where services can be easily accessed by its customer base. A company producing a product might choose somewhere with good transport links to allow the product to be easily shipped out and might be able to avoid the costs of locating in a busy town / city.

In the end, it will all depend on the circumstances of the entrepreneur, their preferences and product / service.


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