Location: Set yourself up for success

Location: Set yourself up for success. According to one expert, there are many factors in choosing the right location for your small business and a careful consideration and calculation of cost is crucial. Staff photo/IRVIN MINTZ

"The fundamental thing is," said Joseph Paradi, a management and entrepreneurship professor at the University of Toronto, "can you get the customers who need your goods?"

He said smart entrepreneurs know their products and know who wants to buy them.

"A store that caters to retired people isn't going to be a good idea in the suburbs. If you're a halal meat store and open in Rosedale you're not going to get much uptake."

Paradi said there are many factors in choosing the right spot, and a careful consideration and calculation of cost is crucial.

First, he recommended entrepreneurs should research Statistics Canada demographic data, accessible on statcan.gc.ca or the city of Toronto's website, to find a location near people of an age, ethnicity, income level and family status that's in line with the product being sold.

He advised to start small - the average new retail store in Toronto is anywhere from 1,200 to 1,500 square feet - and said retailers should almost always lease, at least until they're established.

"If you rent you're entitled to trouble-free enjoyment. If there are rats or plumbing problems the landlord has to fix it up," he said, adding leasing also frees up capital to invest in the business that would otherwise be locked up in real estate.

Most leases are signed on a five-year basis, with an option to renegotiate and renew for an additional five. However, commercial business owners renting office space often have the option of shorter leases, and in the case of business incubators - an increasingly popular model where office spaces are shared between young companies in order to have them work together for mutual benefit - they can be as short as a single month.

"You get an office and they promote you synergising with people around you. You share a board room, a receptionist, it reduces your cost," said Sunny Verma, president of the tutoring start-up Tutorbright and an advocate of business incubators. "That's key when you're starting a new business."

Retailers can also take advantage of the businesses around them.

"We're right next to the Bloor cinema," said Jeff Barber, owner of Sonic Boom, an independent Toronto music store. "You have people wanting to kill a little time so we have a rush before and after every movie."

Plazas and malls provide similar opportunities by grouping businesses attracting similar types of clientele near restaurants and big box stores like Sears and the Bay. But they also come with a premium. While standalone locations can start as low as $30 per square foot in underdeveloped neighbourhoods, most mall spaces start at $80 per square foot and come with additional fees that take a slice off profits once they reach a certain ceiling.

The cost of retail plazas, such as the one at Cumberland and Bay, fall somewhere in the middle, as do high-traffic underground spaces, although their crowds die quickly outside of normal business hours.

John Crombie, national retail director with real estate broker Cushman Wakefield, said retailers can balance the price of these options by carefully projecting sales and aiming for a sweet spot of spending about 12 per cent of profits on rent, or 18 per cent in premium locations.

The final consideration is avoiding areas with high competition where demand is already met. Although, in areas with very high demand, a large grouping of similar businesses isn't necessarily a bad thing.

"Perhaps having four Korean Sushi places on Roncesvalles might be too much competition," says Katherine Roos, small business manager with Enterprise Toronto, "But in Koreatown people go to look for sushi. If you've got a special angle, (competition) is a good thing."

Overall, said Roos, Toronto has taxes, foot traffic, a talent pool and driven entrepreneurs that make it a perfect city for new businesses. And, she added, success is just around the corner for anyone in the right location.

"It's about gathering information to make informed, fact-based decisions," she said. "It all comes down to planning."