Choosing a Business Location

Business Start Up Guides

Choosing a Business Location

Selecting the right location involves basic considerations such as proximity to customers, ease of access, and leasing and zoning restrictions. Financial incentives and tax credits offered by your local government may also influence your your decision.

These resources will help you understand some basic legal and regulatory issues you'll encounter when selecting a business location, as well as practical advice for choosing right business location.

General Resources

• Basics of Zoning Laws
  Plain English guide to zoning laws that can affect where you locate your business.

Zoning ordinances and regulations are laws that define how you can use your property. Cities, counties, townships, and other local governments adopt zoning plans in order to set development standards to assure that land is used for the common good.

Zoning Overview

Zoning laws come into play on every single property regardless of how big or small. If you are thinking about buying property or making improvements to property you already own, make you understand the zoning restrictions before you commit to anything.

Property is zoned into commercial and residential uses, so a commercial building cannot be built in a residential neighborhood and vice versa without a change in zoning ordinances.

Zoning changes on property is a very difficult process. It requires a process of giving public notice and then having a variance approved by government agencies that oversee enforcement of the zoning plan. Opposition to zoning changes by neighbors and other interested parties can be fierce.

You can find out how property is zoned by contacting your local planning agency; or use the state and local search engine to find if your city or county has zoning ordinances online. Your local planning agency can also explain what you would need to do to get a variance.

Before getting too involved in a zoning issue, it would be a good idea to hire a local land use attorney to help you through the process.

Zoning Restrictions

Use requirements refer to how property can be used. Typical zonings categories include:

• Residential
• Commercial
• Industrial
• Agricultural
• Recreational

These categories usually break down into further subcategories. For example, there are subcategories for single-family (i.e., residences) and multiple-family (e.g., apartments or condominiums) residential use.

Zoning laws will set forth many use restrictions, such as:

• the height and overall size of buildings
• their proximity to one another
• what percentage of the area of a building lot may contain structures
• what particular kinds of facilities must be included with certain kinds of uses

For example, zoning ordinances will typically limit the number of stories and total height of a building, require a certain number of parking spaces for a commercial building, and require a driveway and garage on a suburban residential property.

The bulk requirements of a zoning ordinance refer to:

• the height and size restrictions on buildings including the number of stories in a building
• the square feet of space which a building provides
• the percentage of area it covers on a building lot
• the minimum lot size requirements, if any

The setback and side-yard requirements of a zoning ordinance refer to the distance between the front and back property lines and from the side property lines.

Subdivisions

Land is divided up into legal parcels. If you own land and want to divide it up, you have to go through an authorization process to create new legal parcels.

Most zoning ordinances place limitations on a property owner's ability to subdivide land. There are rigorous procedural requirements for notices, hearings, and consideration by zoning authorities before permission can be given to subdivide property.

There are usually simplified procedures if you want to divide your property into only a few parcels (e.g., not more that 4 parcels). These are sometimes called lot splits.

A major subdivision, however, will be subject to more rigorous rules. At a minimum, these rules would include requirements that a developer prepare a site plan or a subdivision map, which is a comprehensive map showing the planned use of a particular property in detail.

In addition, subdivision laws may require:

• the lots be of a particular size
• the streets be of a particular width and quality
• the water, gas, and sewer lines of a particular type be supplied

Some states permit local governments to require developers who are subdividing property to pay for some portion of the municipal improvements that are necessary for residential use, such as:

• Sewers
• Schools
• Roads

A subdivision will go through many public hearings, giving ample opportunity for anyone to speak in favor of or against a project.

Zoning Problems

You may be unpleasantly surprised to find you can't use your property as intended without violating zoning ordinances. There are many ways a lawyer can help you to get around the technical requirements of the regulations.

Non-Conforming Use

Existing properties are often used in a manner that's inconsistent with a new zoning ordinance. Such uses are referred to as non-conforming uses because they don't conform to the requirements of the zoning ordinance.

A use may be non-conforming because:

• the nature or characteristics of the building itself don't conform to the zoning ordinance
• the activity going on in the building doesn't conform

For example, a factory located in a residential zone is a non-conforming use. A two-story building located in a one-story zone is also a non-conforming use.Generally, you don't have to quit an existing non-conforming use and may continue after the adoption of a zoning ordinance.However, the right to continue a non-conforming use may be lost if the non-conforming use is abandoned. For example, if a fast-food restaurant is operated in a storefront in an area that is later zoned to exclude all food-related operations, the restaurant may continue to operate. If the restaurant closes, the right to continue the use may be lost if the same restaurant is not reopened or if some other similar food-related use is not begun within a certain period of time. If the building itself is non-conforming, the right to be non-conforming may be lost if the building is completely, or even partially, destroyed.

Amortization is another way to limit non-conforming uses. Under this approach, a non-conforming use is permitted to continue for a specific period of time, after which it must be converted to a conforming use.

Conditional Use

A conditional use is a use which is permitted under a zoning ordinance, but which must meet certain conditions. For example, a zoning ordinance may permit professional offices in a residential zone if at least four off-street parking places are provided.

When a use is conditional, the zoning ordinance often will require the property owner to file an application with local officials so that they may determine whether the conditions have been met.

Variances

A variance or special use permit is an exception to the requirements of a zoning ordinance. Most statutes permitting the adoption of zoning ordinances also detail the circumstances under which variances may be granted.

Usually, you must show some kind of hardship to justify getting a variance. Some examples of hardship are:

• an undersized lot on which a variance is needed to construct any useful structure
• an odd-shaped lot cannot satisfy the side-yard and setback requirements for the construction of a residence that would otherwise be permitted in the zone

Spot Zoning

Local land use plans and zoning ordinances usually contain restrictions on land uses in specific areas (or zones) outlined in the plan or ordinance.

Once local officials have adopted a plan and ordinance, property owners may seek exceptions to the requirements and limitations either through:

• an amendment to the plan or ordinance
• an application for a variance or special use permit

In both cases, the amendment or application may be opposed on the grounds that permitting special exceptions for specific properties is inconsistent with the overall land use plan or ordinance, and constitutes illegal spot zoning.

Whether or not a particular exception constitutes illegal spot zoning or is merely a permissible exception greatly varies according to:

• the facts of the property use
• the provisions of the applicable enabling statute
• the land use plan in question

Zoning Laws for Home Based Businesses

Learn how to comply with local zoning laws when conducting business out of your home.

Are you breaking any zoning laws if you operate a business out of your home?

It depends.

Home based businesses make up roughly half of all U.S. businesses. Over the last decade or so, there has been broad movement by local governments to adopt provisions that would allow home-based businesses in residential zones. In the past, most local zoning laws either restricted the type of businesses allowed to be conducted in residential areas or banned commercial activity entirely unless the business received an exception or variance.

Current zoning codes still have a number of restrictions on home based businesses.

• Physical Changes and Visibility. Zoning codes often
  • Prohibit exterior physical changes to the home for the purposes of conducting business
  • Prohibit outside business activities, storage, or displays, and/or
  • Restrict or prohibit signage or commercial vehicles
• Traffic. Most zoning codes:
  • Restrict the numbers of visitors to a home-based business,
  • Restrict the number of employees working in the home or prohibit employees altogether, and/or
  • Restrict business parking or require that additional parking be provided.
• External Effects. Most zoning codes:
  • Restrict or prohibit nuisance impacts (e.g., noise, odors, glare), and/or
  • Prohibit use or storage of hazardous materials.
• Business Activities. Many zoning codes prohibit certain types of businesses in residential areas.

Most zoning restrictions are the same across a city, township or county. In some cases, zoning restrictions may exist for different types of business within residential areas. Also, in some jurisdictions complying with zoning restrictions may include applying for a permit. For example, in Montgomery County, Maryland anyone who operates a home-based business which generates more then five visits to the site per week, or who provides a non-resident employee, must register his or her business.

Make sure you have a basic understanding of local zoning ordinances. Zoning laws are determined by your city or county government. Find out which government agency enforces your zoning laws, and learn the specific laws that apply to operating home based businesses. Use the state and local search engine to find zoning ordinances in your community.

Commercial Leases
Learn how to get the best commercial lease for your business.

Leasing a commercial office space is one of the largest expenses made by new and expanding businesses. Commercial leases are often negotiated and there is no standard for commercial leases. It's recommended that you get a lawyer's help to make sure you get the best deal.

Every commercial lease should be in writing and include the following details:

• Rent, including any increases (called escalations)
• Length of the lease
• Conditions under which the lease may be renewed
• Whether or not the tenant is responsible for paying utilities, such as phone, electricity, and water
• Whether or not the tenant is responsible for paying any of the landlord's maintenance expenses, property taxes, or insurance costs, and if so, how they'll be calculated
• Any required deposit and whether you can use a letter of credit instead of cash
• A description of the space you're renting, square footage, available parking, and other amenities
• A detailed listing of any improvements the landlord will make to the space before you move in
• Any representations made to you by the landlord or leasing agent, such as amount of foot traffic, average utility costs, restrictions on the landlord renting to competitors (such as in a shopping mall), compliance with Americans with Disabilities Act requirements, etc.
• Assurances that the space is zoned appropriately for your type of business
• Ability to sublease or assign the lease to someone else, and if so, under what conditions.
• How either tenant or the landlord can terminate the lease and the consequences.

Before you start negotiating

• Research the going rate for office space in the neighborhood, and talk with other tenants in the area. This will help determine your negotiating price.
• Have a good idea of realistic escalations. Escalations should be for specific dollar amounts or tied to a known method of calculation, such as consumer price (cost of living) indexes.
• Keep in mind that a shorter less means less commitment for you, but less predictability for the property owner. Going with a longer lease gives you more negotiating power, but you'll want to be certain you've carefully considered your location. You may want to be prepare to negotiate lower rents for a longer commitment. If you have a month-to-month lease, you'll want to make sure the landlord gives you as much time as possible when terminating the lease. Also, your landlord may be more willing to make lots of expensive improvements if you're signing a longer lease.
• Consider negotiating reduction in rent payments for improvements you agree to make to the property.
• Check with your local zoning authority to make sure the property is properly zoned for your type of business.

Finally, you should definitely negotiate the ability to sublease so if the location is not working out, you can move with as little financial pain as possible.

When it comes time to renegotiate your commercial lease, you'll want to document your reasons for a lower rent or more space improvements with hard facts regarding lower foot traffic than represented, a downturn in your industry, and so forth. Some landlords will even be willing to take a percentage of your sales instead of a flat rental fee when economic times are slow.

As a tenant, you have far more leeway when negotiating a commercial lease rather than with a residential lease, which is one reason why having your own lawyer to represent you in negotiations is so important. A lawyer can also research zoning laws and local ordinances and fill you in on the local real estate market conditions and customs.

Business Location Tips

Get practical advice for selecting a winning business location.

The ideal location of your business depends on the kind of business you're running. Before you begin scouting a location, consider some factors that can help you select the right location for your business.

Determine Your Business Activity

Do your customers come to you, or do you go to your customers? Do you have employees? Do you manufacture products for distribution?

Answers to these questions can quickly narrow down your location choices.

If your type of business depends heavily on pedestrian or drive-by traffic, such as a florist, gift shop, or clothing boutique, you'll want to seek out popular retail locations, such as a downtown area or a mall, where there are few restrictions on signage that can help attract passing customers.

If customers typically seek out your type of business, such as a child care service, beauty salon, or fitness center, you'll want to seek out a space that easily accessible from population centers, major roads and public transportation.

If your customers do not typically come to you, other location factors may be more important than physical proximity to your customers. For example, if you conduct much of your business online, establishing a home-based business might be more desirable and economical than leasing commercial office space. If you are manufacture products for distribution, an ideal location might be an industrial park near major transportation ports.

Ease of Access

If your business is a customer destination, consider how people get around in the area where your business will be located. For example, if you are scouting out a location in a suburban area, most people may get around by car. You'll need to make sure you close to major streets, and have plenty of parking. If you are scouting a location in an urban area, consider areas around public transportation hubs or areas of the city where there is a lot of foot traffic.

Proximity to Your Competitors

While it may seem counter-intuitive, operating a business close to your competitors is often very beneficial. This is especially true if you have a retail business that relies heavily on foot traffic. Shopping malls are a good example of why proximity to your competitors is an important factor. Most major pedestrian malls are chocked full clothing shops, and cost of retail space is often very high. The reason for this is that the number of potential customers increases exponentially on a per-store basis around a concentration of similar businesses. For example, while one store might attract 50 customers, two stories might attract 200 customers, and three stories might attract 1,000 customers.

Zoning and Signage

Before setting up shop, check with you local zoning authority to make sure you will not break any city ordinance or zoning policy in your preferred location. Also, consider you signage requirements, and compare them to signage regulations set by your local government. Many communities set restrictions on the size and appearance of signs.

You can find out how property is zoned by contacting your local planning agency; or use the state and local search engine to find if your city or county has zoning ordinances online.

Home Based Business

Home based businesses make up roughly half of all U.S. businesses. Convenience and low start-up costs are just few of the reasons that make a home office an attractive business location. However, running a home based business isn't for everyone. Because most residential areas are not zoned for commercial businesses, your local government may have tight restrictions on the types of businesses permitted to operate out of a home. Check with your local zoning authority for rules that apply to you. If you plan to hire employees and have customers come to you, a home based business is probably not the best business location for you.

Signage Tutorial
For help making the most of your commercial signage, visit SBA's signage tutorial.

Site Selection Services

Visit your state economic development agency to get help locating commercial office space and property.

Other Articles Related To Business Start Up Guides

Quick Navigation

Related Companies In This Industry