Location has a big impact on the success of a startup. Proximity to necessary resources, access to a peer community for support, and logistical considerations all influence the desirability of a location. Once you find the right area, then you need to find the right office, manufacturing, or warehouse space. This guide will walk you through three steps to choose your startup’s location, including the key things to consider when making a decision.
1. Evaluate Geographic Areas for Your Startup Location
Geographic location plays a key part in the decision of where to locate. Let’s take a look at each factor you should be thinking about when it comes to the geographic area of your startup location.
Adequate Staffing Pool
Your team will make or break your company. You need to find the right people at a cost you can afford. This is important for initial staffing as well as ongoing hiring as you grow. Locating your startup in a city with a lot to offer prospective employees will give you a competitive advantage when it comes to attracting talent.
Access to Local Startup Support
It’s helpful to be in an area with a solid network of other startups and programs to support them to ensure you have the resources you need. Areas that foster startups and offer mentorship programs will help you navigate things like advertising and marketing, legal regulations, finances, and HR issues. Having a peer group to mastermind with and lean on for support will help you as you grow.
Though you don’t need to be located near investors, it makes it a lot easier if you’re in proximity to them or to those who can introduce you to funding sources. Being located near investors or those who have investors in their network gives you opportunities to connect with capital sources that you may need as you build your company.
Cost to Set Up and Maintain Physical Space
The area you choose will have a direct impact on the rental cost for space. Rents will be higher in a prime part of a city, for example, compared to the outskirts. Keep in mind that there are other costs that you will need to pay as well, including utilities, insurance, taxes, janitorial, and other services to maintain the space.
Start by making a list of your startup’s specific needs before you start looking. You’ll want to include things like parking, accessibility, room for expansion, and anything else that you might need.
Taxes and Government Incentives
Sales tax and income tax is affected by your location. Be sure to explore tax rates in your desired city and surrounding areas. Also, take a look at what is available in the way of government incentives, since they are typically tied to geographical location.
2. Find Your Space
Once you find the geographic area that’s a good fit for your startup, it’s time to identify office, manufacturing, or warehouse space that will meet your needs. Here are four factors to think about as you evaluate spaces.
Determine how much you can afford to pay on a monthly basis, considering your projected cash flow. Factor in both fixed and variable costs and give some thought to the consistency of your revenue and what you can afford on lower-income months. Don’t forget to look into shared-space arrangements like coworking collectives, which often offer attractive, low-cost options and don’t require an extended lease.
Consider how long of a lease period you want to commit to. Usually, the longer the lease, the better rates you’ll get. Leases are typically available for 3-year and 5-year terms. Will you want to lock into a location for five years to get a better rate, or would you prefer the increased flexibility of a shorter lease?
How much space do you need now and during the term of your lease? It’s important to consider the size of your business today and what you expect you’ll need during the length of the lease term as you grow. Will you be able to access more space if your needs change in the location you’re considering? If not, a short-term lease may work best for you.
Depending on the nature of your business, you may want to consider if having a prominent and visible location would be an asset. If you sell directly to customers, or if you are planning local grassroots marketing, having people see your location regularly may be worth the increase in cost to get a prime location.
3. Negotiate a Lease
Once you’ve found a space that will meet your needs and your budget, it’s time to negotiate the terms of the lease. Here’s a list of questions to ask as you’re reading over the document:
- Is the rent fixed during the lease term?
- What are the upfront costs?
- What does the rent include? Does it include utilities, maintenance and repairs, parking?
- Can you sublease the space?
- Can you hang signage around the building?
- Who’s responsible for maintenance and repairs?
You can negotiate any terms that aren’t ideal for your startup. Though you can handle the entire process on your own, it’s a good idea to consult with an attorney to evaluate the lease terms before you sign.
Finding the right location for your startup is an important decision, and there’s a lot to consider.
Evaluating the factors involved, finding the right space, and negotiating a lease is easier when you know the right things to look for and questions to ask.
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