7 minute read

Business Location Analysis When Buying an Established Business

If you’re buying a business, having the right location matters. A prime location can help with foot traffic, increase visibility, and target your customer base. Before diving into specific location factors, it’s important to understand whether you’re:

• Purchasing a business with owned real estate included
• Taking over an existing lease
• Buying a business that you can potentially relocate

Each scenario presents different opportunities and considerations that will influence your location analysis.

Factors Driving Location

• Demographics—is the area frequented by your target market?
• Competition—are there too many businesses offering similar products or services nearby?
• Accessibility—can customers easily get to the business, and is parking available?

If you’re buying a business with owned real estate, you’ll also want to evaluate:

• Property value appreciation potential
• Tax benefits of property ownership
• Opportunities to leverage the real estate asset for financing
• Possibilities for generating additional income through partial leasing

Evaluate the local economy and growth potential of the area, too. Whether you have one store front or multiple locations, also consider immediate and future needs as you analyze location.

The Local Market and Demographics

When buying an established business, it’s important to understand the local market and demographics. Look at population density and growth trends to gauge the size of your customer base. A growing population suggests steady demand, while a shrinking one could be challenging for small business owners.

Check income levels and spending habits in the local area to see what potential customers are willing to pay. This is especially critical if you plan to relocate to a new location. Higher-income areas might support premium products, while lower-income areas may prefer affordable options.

For businesses considering relocation, carefully assess whether your current customer base is location-dependent and what percentage you might retain after moving. Some businesses can successfully relocate within the same market, while others may need to rebuild their customer base entirely.

Consider age groups and lifestyles. For example, a small business aimed at young professionals may do well in cities, while a family-focused business might do better in the suburbs.

Finally, make sure the area's demographics match your target audience. If not, you may need to rethink the physical location or even consider a new business name.

Accessibility and Visibility

Having a visible and easy-to-access location can impact a business’s success. Start by checking foot and car traffic patterns. High foot traffic is great for restaurants and retail, while car traffic can benefit service businesses.

Parking matters too—customers may avoid your business if parking is hard to find. In cities, good public transport can increase foot traffic.

Also, think about signage. Can you clearly advertise your business, or are there restrictions? Making sure your business is easy to find and convenient to reach can help attract and keep customers.

Examining Lease and Property Considerations

When buying a business with an existing lease, carefully review:

• Lease transfer or assignment terms
• Landlord approval requirements
• Remaining lease duration and renewal options
• Personal guarantee requirements
• Restrictions on business modifications or hours
• Common area maintenance charges and other obligations
• Lease costs should align with your expected revenue - understanding the appropriate rent to revenue ratio is important for maintaining profitability

For businesses with owned real estate, evaluate:

• The building's condition and upcoming maintenance needs
• Property tax implications
• Zoning ordinances and potential changes
• Future expansion possibilities
• Insurance requirements

If you're considering relocation, factor in:

• Moving costs and potential business interruption
• Employee retention in the new location
• Need for rebranding or marketing to the new area
• Build-out costs for the new space

Make sure the business meets local zoning ordinances and check for any upcoming developments that could affect your specific location. Also, think about whether the space allows for future expansion or relocation, if necessary.

Location and its Impact on Operations

Location significantly affects a business’s operations. The local labor market determines the availability of skilled employees—are there enough qualified workers nearby? Proximity to suppliers and distributors impacts supply chain efficiency, as shorter distances can save on costs and delivery times.

You should also consider local regulations and licensing requirements. Certain areas can enforce stricter rules that could complicate operations. Additionally, safety and security are important matters, something every business needs to consider. Operating in a low-crime area helps protect both employees and assets.

Finally, a strong relationship with the local community can foster loyalty and support. Be sure to prioritize community engagement to enhance your business's reputation and success.

Evaluating Business Ecosystem

Entrepreneurs should look at market saturation and growth potential. A crowded market can make it hard to grow, while an underserved market offers more room to expand.

Analyze the local business mix. Are there complementary businesses nearby that could drive traffic to your location? For example, a coffee shop next to a bookstore might attract shared customer bases. Conversely, think about direct competitors and how they might affect your market share.

Lastly, assess the impact of anchor tenants. Large, well-known businesses may attract more foot traffic, which can benefit smaller businesses nearby.

Industry Specific Considerations

When buying an established business, different industries have specific needs that can affect the location’s success. Be sure to consider the following:

• Restaurants
  • Look for areas with high foot traffic, like shopping centers, office areas, or tourist spots.
  • Make sure there’s enough parking for your customers.
  • Avoid a business address with too many competing restaurants.
  • Consider whether the current location’s reputation is an asset.
• Retail
  • Match your potential location to the local demographics; the area's people should fit your target buyers.
  • Being close to complementary businesses or busy shopping areas can boost your sales.
  • Evaluate whether the retail business is truly location-dependent or could benefit from relocation
• Storage Facilities
  • The best locations are often on the outskirts of town with easy access from main roads.
  • Make sure the area is safe and accessible to build customer trust.
  • Property ownership may be particularly valuable in the storage and warehouse industry.
• Office Spaces
  • Choose locations near public transport for easier commuting and client visits.

By knowing what matters most for each type of business and understanding your real estate options—whether buying property, assuming a lease, or relocating—you can make informed decisions that set your business up for success. Consider the location of the business during your search to buy an existing business.

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