Small Business Management Chapter 9 PowerPoint

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CHAPTER
9
The Location Plan

LEARNING OBJECTIVES
By studying this chapter, you should be able to…
9-1 Describe the five key factors in locating a brick-and-
mortar startup.
9-2 Discuss the challenges of designing and equipping
a physical facility.
9-3 Recognize both the attraction and the challenges of
creating a home-based startup.
9-4 Understand the potential benefits of locating a
startup on the Internet.

9-1 LOCATING THE BRICK-AND-
MORTAR STARTUP
• The choice of a location for a physical facility is
often a one-time decision, but a small business
owner may later relocate a venture to reduce
operating costs, be closer to customers, or tap
other advantages.

9-1a The Importance of
the Location Decision
• Brick-and-mortar facility – The traditional physical facility from
which businesses have historically operated.
• The importance of the initial decision as to where to locate a brick-
and-mortar facility is underscored by both the high cost of such a
place and the hassle of pulling up stakes and moving an
established business.
• Also, if the site is particularly poor, the business may never
become successful, even with adequate financing and superior
managerial ability.
• The choice of a good location is much more vital to some
businesses to others.
• Example: The location decision for an apparel store would be much
different than the location decision for a painting contractor’s office.

9-1b Key Factors in Selecting
a Good Location (slide 1 of 9)
• Five key factors guide the location selection
process:
1. Customer accessibility.
2. Business environment conditions.
3. The availability of resources.
4. The entrepreneur’s personal preference.
5. Site availability and costs.

9.1 Factors in Determining a Good Business Location

• Relevant questions to ask when making the
location decision include the following:
• Neighbor mix: Who’s next door?
• Security and safety: How safe is the neighborhood?
• Services: Does the city provide reliable trash
pickup, for example?
• Past tenants’ fate: What happened to previous
businesses in that location?
• Location’s life-cycle stage: Is the area developing,
stagnant, or in decline?

CUSTOMER ACCESSIBLITY
• Customer accessibility is a key location factor in
industries with high transportation costs, as well as
those that must provide handy access for targeted
customers to avoid losing those customers to more
conveniently located competitors.
BUSINESS ENVIRONMENT CONDITIONS
• Business environment factors affecting the location
decision are climate, competition, legal requirements,
and the tax structure.

• Although most state and city governments go to great
lengths to support startups, nearly all cities have
regulations that restrict new business operations under
certain circumstances.
• Zoning ordinances – Local laws regulating land use.
• These ordinances often apply to factors related to:
• Traffic and parking.
• Signage.
• Nonrelated employees working in a home.
• The use of a home more as a business than as a residence.
• The sale of retail goods to the public.
• The storage of hazardous materials and work-related equipment.

AVAILABILITY OF RESOURCES
• Availability of resources, such as raw materials and
crucial suppliers, can be important to location
decisions.
• Proximity to important sources of raw materials and an
appropriate labor supply are particularly critical considerations
in the location of most manufacturing businesses.
• Access to key suppliers influences site selections for retail
outlets and restaurant operations.

• Availability of suitable labor can also be important to
location decisions.
• The suitability of the labor supply for a manufacturer depends
on the nature of its production process.
• Labor-intensive operations need to be located near workers with
appropriate skills and reasonable wage requirements.
• A history of acceptable levels of labor productivity and peaceful
relations with employers in a particular area is beneficial to
almost any production operation.
• Companies that depend on semiskilled or unskilled workers
usually locate in an area with surplus labor, while other firms may
need to be close to a pool of highly skilled labor.
• Access to good transportation is important to many
companies, particularly retail stores and small
manufacturers.

PERSONAL PREFERENCE OF THE ENTREPRENEUR
• The entrepreneur’s personal preference is a practical
consideration in selecting a location.
• Despite a world of alternatives, small business owners often
choose to stay in their home community, which may offer certain
unique advantages that cannot be found elsewhere.
• The entrepreneur may generally appreciate and feel comfortable with
the atmosphere of his or her home community.
• It may be easier to establish credit with hometown bankers who know
an entrepreneur’s personal background and reputation.
• Having personal connections in the local business community can
lead to invaluable business advice.
• The small business owner probably will have a better idea of their
local residents’ tastes and preferences than would an outsider.
• Friends and relatives in the community may be quick to buy the
product or service and spread positive reports about it to others.

SITE AVAILABILITY AND COSTS
• Once an entrepreneur has settled on a certain area for
his or her business, a specific site must still be chosen.
• If an entrepreneur’s top location choices are
unavailable, other options must be considered.
• One alternative is to share facilities with other enterprises.
• Business incubator – A facility that provides shared space,
services, and management assistance to new businesses.
• The purpose of business incubators is to see new businesses hatch,
grow, and then move on, so the situation is temporary by design.
• Alternatives that are more permanent are the shared-office
arrangement and “co-working” movement, which involves
shared working spaces that allow workers to work and connect
in the same location.

• Assuming that suitable building space is available, the
entrepreneur must decide whether to lease or buy.
• Although most small business owners choose to purchase,
there are a number of benefits to leasing:
• A large outlay is avoided.
• Risk is reduced by minimizing investment and by postponing
commitments for space until the success of the business is
assured and facility requirements are better known.
• It is usually more affordable to lease in a high-image area than to
buy in a prime location.
• The entrepreneur can focus on running the business rather than
managing a property.
• However, there clearly are disadvantages to leasing as well.
• A well-selected purchased property appreciates in value.
• No permission is needed to make changes or additions to the property.

9-2 DESIGNING AND EQUIPPING
THE PHYSICAL FACILTIES
• A well-written location plan should describe the
physical space in which the business will be
housed and include an explanation of any
equipment needs.
• The plan may call for a new building or an existing
structure, but ordinarily a new business that needs
physical space will occupy an existing building,
perhaps after some minor or major remodeling.

9-2a Challenges in Designing
the Physical Facilities
• The general suitability of a building depends on the functional
requirements of the business.
• It should not be too large and extravagant nor too small and restrictive.
• Important factors to consider include:
• The age and condition of the building.
• Potential fire hazards.
• The quality of heating and air conditioning systems.
• The adequacy of lighting and restroom facilities.
• Appropriate entrances and exits.
• The comfort, convenience, and safety of the business’s
employees and customers must not be overlooked.
• The square feet of office area per employee has decreased in
recent years.
• Office configurations have also gone through a substantial
transformation, with a shift toward open designs.

9-2b Challenges in Equipping
the Physical Facilities (slide 1 of 3)
• The final step in arranging for physical facilities
is the purchase or lease of equipment and
tools.
• Research has shown that, overwhelmingly, owners
of small businesses would rather own their
equipment than lease it.

9.2 Small Business Owners Choose Buying over Leasing

MANUFACTURING EQUIPMENT
• Machines used in factories can include either general-
purpose or special-purpose equipment.
• General-purpose equipment – Machines that serve many
functions in the production process.
• General-purpose equipment requires minimal investment and is
easily adapted to various operations.
• General-purpose equipment also offers flexibility.
• Special-purpose equipment – Machines designed to serve
specialized functions in the production process.
• Special-purpose equipment offers a narrower range of possible
applications and, thus, has little or no resale value.
• Special-purpose equipment is more expensive to buy or lease.

RETAILING EQUIPMENT
• Small retailers must have merchandise display racks and
counters, storage racks, shelving, mirrors, shopping carts, cash
registers, and other equipment that facilitates selling.
• Fixtures and other retailing equipment should create an
atmosphere appropriate for customers in the retailer’s target
market.
OFFICE EQUIPMENT
• Every business office—even a home office—needs furniture, filing
and storage cabinets, and other such items.
• Entrepreneurs should choose office equipment (like computers
and communications systems) that reflects the latest advances in
technology applicable to a particular business.

9-2c Business Image
• All new ventures, regardless of their function,
should project an image that is appropriate to
and supportive of the business and its
intentions.

9-3 LOCATING THE STARTUP IN
THE ENTREPRENEUR’S HOME
• Home-based business – A business that
maintains its primary facility in the residence of
the owner.
• Launching a business from home has become
a viable permanent option for an increasing
number of startups.

9-3a The Attraction of
Home-Based Businesses (slide 1 of 2)
• Home-based businesses are started both for financial
reasons and to accommodate family lifestyle
considerations, such as the following:
• To get a business up and running quickly, and with little risk.
• To do something you love to do, and get paid for doing it.
• To be your own boss, and reap the rewards from your efforts.
• To have the flexibility to spend more time with family and
friends.
• To save time and money wasted on daily commutes.

9-3a The Attraction of
Home-Based Businesses (slide 2 of 2)
FINANCIAL CONSIDERATIONS
• Locating a business at home helps increase profits by reducing
costs.
• Starting at home allows you to build your business slowly, without
the pressing burden of having to find the cash to cover rent for
office space every month and pay other expenses.
• It also allows you to deduct costs related to space used in the
home for business from any taxes that may be owed from the
venture’s income, as long as you conform to the rules established
by the IRS.
LIFESTYLE CONSIDERATIONS
• Entrepreneurs who locate business operations in the home are
frequently motivated by the desire to spend more time with family
members.

9-3b The Challenges of
Home-Based Businesses
PROFESSIONAL IMAGE
• Maintaining a professional image when working at home is a
major challenge for many home-based entrepreneurs.
• If clients or salespeople visit the home-based business, it is critical
that a professional office area be maintained.
LEGAL CONSIDERATIONS
• Local laws, such as zoning ordinances, can pose serious problems
for home-based businesses.
• There are also tax issues related to a home-based business.
• Example: A separate space must be clearly devoted to business
activities if an entrepreneur is to claim a tax deduction for a home office.
• Insurance considerations also affect a home-based business.
• A homeowner’s policy is not likely to cover an entrepreneur’s
business activities, liabilities, and equipment.

9-4 E-COMMERCE: LOCATING A
STARTUP ON THE INTERNET
• E-commerce – Electronic commerce, or the
buying and selling of products or services on
the Internet.
• The Internet can significantly boost a small
company’s financial performance.

9-4a Benefits of
E-Commerce for Startups
• E-commerce can benefit a startup in many
ways.
• It allows a new venture to compete with bigger
businesses on a more level playing field.
• The Internet blurs geographic boundaries and
expands a small company’s reach.
• An e-commerce operation can help a startup with
early cash flow problems by compressing the sales
cycle—that is, reducing the time between receiving
an order and converting the sale to cash.
• The shorter cycle translates into quicker payments from
customers and improved cash flows to the business.

9-4b E-Commerce
Business Models (slide 1 of 7)
• A business model is an analysis of how a firm
plans to create profits and cash flows given its
revenue sources, its cost structures, the
required size of investment, and sources of
risk.
• Online companies differ in their decisions
concerning which customers to serve, how
best to become profitable, and what to include
on their websites.

9.3 Basic E-Commerce Business Models

9-4b E-Commerce
TYPE OF CUSTOMERS SERVED
• E-commerce businesses are commonly distinguished
according to customer focus.
• There are three major categories of e-commerce
business models based on the type of customers
served:
1. Business-to-business (B2B).
2. Business-to-consumer (B2C).
3. Consumer-to-consumer (C2C).

9-4b E-Commerce
• Business-to-business (B2B) model – A business
model based on selling to business customers
electronically.
• Example: Hewlett-Packard.
• The dollar amounts generated by firms using a B2B model are
significantly greater than those for firms with a B2C model.
• B2B operations come in all shapes and sizes, but the most
popular form of this strategy emphasizes sales transactions.
• A unique form of B2B trade involves work outsourcing, which
helps connect freelancers and other specialists with
companies that need their services.

9-4b E-Commerce
• Business-to-consumer (B2C) model – A business
model based on selling to final consumers electronically.
• Example: Amazon.
• The B2C model offers three main advantages over brick-and-
mortar retailing:
1. Convenient use.
2. Immediate transactions.
3. Round-the-clock access to a broad array of products and services.
• B2C e-commerce businesses face unique challenges—
payment security risks and data breaches, customers who
refuse to purchase a product without first seeing or trying it, etc.
• However, they also enjoy the advantages of tremendous
flexibility by being able to change merchandise mixes and prices
quickly and easily modify the appearance of their online stores.

9-4b E-Commerce
• Many producers and wholesalers today are using a
strategy sometimes referred to as disintermediation.
• Disintermediation – The bypassing of a middleman by a
producer or wholesaler in order to sell its product or service
directly to the final consumer.
• Consumer-to-consumer (C2C) model – A business
model usually set up around Internet auction sites that
allow individuals to list items available for sale to
potential bidders.
• Auction site – Web-based businesses offering participants
the ability to list products for consumer bidding.
• Example: eBay.
• Auction sites generate most of their revenue through listing
fees and commissions.

9.4 Selling Your Item on eBay
Step 1: Set up an eBay seller’s account, which is free of charge.
Step 2: Create a listing for the item to be offered for sale.
Step 3: Manage your listing to see if anyone has bid on or purchased your item.
Step 4: Wrap up the sale with your buyer by communicating with the buyer,
receiving payment, shipping the item, and leaving feedback for the
buyer.
Source: Adapted from “Getting Started Selling on eBay,” http://pages.ebay.com/
help/sell/sell-getstarted.html, accessed January 22, 2018.

9-4b E-Commerce
THE NATURE OF ONLINE PRESENCE
• A second broad way of categorizing e-commerce models relates
to a firm’s intended level of online presence.
• The role of a website can range from merely offering information
(information-based model) and basic content (content-based model)
to enabling complex business transactions (transaction-based
model).
• Information-based model – A business model in which a website
simply offers information about a business, its products, and other
related matters.
• It is typically just a complement to an existing brick-and-mortar
facility.

9-4b E-Commerce
• Content-based model – A business model in which a website
provides information (content) that attracts visitors, usually with
the hope of generating revenue through advertising or by directing
those visitors to other websites.
• The content-based model does not provide the ability to make
purchases.
• Transaction-based model – A business model in which a
website provides a mechanism for buying or selling products or
services.
• Emerging platforms for online ventures include:
• Blogging.
• Podcasting.
• Creating a following on YouTube or Pinterest to generate revenue
from ads and sponsorships, donations, subscription charges, or fees
for access to live events.

9-4c Internet-Based Businesses and
the Part-Time Startup Advantage
• Instead of giving up their existing job, many
entrepreneurs start Internet-based businesses
on a part-time basis while still holding on to
their full-time job.
• This approach reduces the personal risk of the
entrepreneur if the venture should fail.
• On the other hand, holding on to a full-time career
while launching a new venture on the side can be
extremely grueling due to the amount of hours that
must be spent working two careers.

Key Terms
auction sites
brick-and-mortar facility
business incubator
business-to-business (B2B)
model
business-to-consumer (B2C)
model
consumer-to-consumer (C2C)
model
content-based model
disintermediation
e-commerce
general-purpose equipment
home-based business
information-based model
special-purpose equipment
transaction-based model
zoning ordinances

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