Small Business Management: An Entrepreneurial Emphasis

2.4SELECTING ALOCATION AND PLANNING THE FACILITIES

business idea begins to take shape as an entrepreneur formulates a business plan. The idea

becomes more tangible as the entrepreneur selects the resources needed to implement the plan, including the business site and any necessary facilities and equipment.

A

The Location Decision

The importance of the location decision is underscored by the costs and impracticality of pulling up stakes and moving an established business. Also, if the choice of site is particularly poor, the business may never be able to get of the ground, even with adequate financing and superior managerial ability.

Five key factors guide the location investigation process:

Customer accessibility.

The foremost consideration in selecting a location should be customer accessibility. Retail outlets and service firms are typical examples of businesses that must be located so as to make access convenient for target customers. Rarely will customers be willing to regularly travel long distances to shop.

Customer accessibility is also vital in industries in which the cost of shipping the finished product is high relative to the product’s value.

Convenient access for customers is one reason small businesses have successfully created such a strong presence on the Internet. With the appropriate computer connection, customers can access a small business’s home page from anywhere in the world.

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Small Business Management: An Entrepreneurial Emphasis

Locating close to niche market customers often dictates a site that otherwise would be less than desirable.

Environmental business conditions.

Environmental conditions can hinder or promote success. For example, weather is an important environmental factor influencing the demand for products such as air conditioners and swimming pools. Competition, legal requirements, and the tax structure are a few of the many other critical environmental factors.

Many states offer location incentives. One strategy is to establish enterprise zones in order to bring jobs to economically deprived areas. Their lure is regulatory and tax relief.

Resource availability.

Raw materials, labor supply, and transportation are some of the factors that have a bearing on location.

If required raw materials are not abundantly available in all areas, a region in which these materials abound offers special locational advantages.

Available supply of labor, wage rates, labor productivity, and a history of peaceful industrial relations are all particularly important considerations for labor-intensive firms.

Access to quality transportation is important to almost all firms.

Personal preference of the entrepreneur.

Many entrepreneurs consider only their home community. From a personal standpoint, the entrepreneur generally appreciates and feels comfortable with the atmosphere of the home community, whether it is a small town or a large city. From a business standpoint, the entrepreneur can more easily establish credit. Sometimes the choice is a location offering unique lifestyle advantages.

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Small Business Management: An Entrepreneurial Emphasis

Site availability and costs.

Once an entrepreneur has settled on a certain area of the country, a specific site must still be chosen.

One choice is shared facilities. For example, a business incubator is a facility that rents space to new businesses or to people wishing to start businesses. It also provides services and even management assistance. Executive suites are another form of a shared facility. These commercially owned offices provide tenants with conference rooms, receptionists, and office equipment.

Ultimately, the site selection process must depend on evaluation of relevant costs. For most new firms, leasing may be the best option for two reasons:

1) A large cash outlay is avoided.2) Risk is reduced by avoiding substantial investment and

by postponing commitments for space until the success of the business is assured and the nature of building requirements is better known.

Home-Based Businesses

Rather than lease or buy a commercial site, increasing numbers of entrepreneurs are electing to use their basement, garage, or spare room for their business operation, creating a home-based business.

Although motivations vary, the main attraction of a home-based business relates to:

1) Financial considerations – Locating at home helps increase profits by reducing costs.

2) Family lifestyle considerations – Many young entrepreneurs remain in a family business because of close family ties. Similarly, entrepreneurs who locate business operations in the home are frequently motivated by the desire to spend more time with family members.

Home-based businesses face special challenges:

1) Family and business conflicts – Business demands can conflict with parental responsibilities.

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Small Business Management: An Entrepreneurial Emphasis

2) Business image – Maintaining an image of professionalism when working at home is a major challenge to home-based entrepreneurs.

3) Legal considerations – Some local laws, like zoning ordinances, regulate the types of enterprises permitted in various geographical areas.

Designing the Physical Facilities

A business plan should describe the physical space in which the business will be housed.

When specifying building requirements, the entrepreneur must avoid committing to a space that is too large or too luxurious. At the same time, the space should not be too small or too austere for efficient operation. The ideal building is practical, not pretentious.

The general suitability of a building for a given type of business operation depends on the functional requirements of the business. Other important factors are the age and condition of the building, fire hazards, heating and air conditioning, lighting and restroom facilities, and entrances and exits. In any case, the comfort, convenience, and safety of the business’ employees and customers must not be overlooked.

Achieving a good layout involves arranging physical facilities so that they contribute to efficient business operations:

Factory layout.

Factory layout presents a three-dimensional space problem. Overhead space may be utilized for power conduits, pipelines for exhaust systems, and the like. Proper design of storage areas and handling systems makes use of space near the ceiling. Space must be allowed for the unobstructed movement of products from one location to another.

The ideal setup for a manufacturing process is to have a straight-line, forward movement of materials from receiving room to shipping room.

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Small Business Management: An Entrepreneurial Emphasis

A process layout groups similar machines together. A product layout arranges special-purpose equipment along a production line in the sequence in which it is used in processing.

Retail store layout.

The objectives for retail store layout include displaying merchandise so as to maximize sales and customer service. Convenient and attractive surroundings contribute to a customer’s continued patronage. Color, music, and even aroma are all important layout factors for a retail business.

Another objective is protecting a store’s equipment and merchandise. Finally, an efficient layout lowers operating costs. In order to achieve all these objectives, the flow of customer traffic must be anticipated and planned.

The grid pattern is the plain, block layout typical of supermarkets and hardware stores. It provides maximum merchandise exposure and simplifies security and cleaning.

A free-flow pattern makes less efficient use of space but has greater visual appeal and allows customers to move in any direction at their own speed. Free-flow patterns result in curving aisles and greater flexibility in merchandise presentation.

Most retailers, especially food merchandisers, use a self-service layout, which permits customers direct access to the merchandise. Not only does self-service reduce selling expenses, it also permits shoppers to examine the goods before buying.

Some types of merchandise are often purchased on an impulse basis. Impulse goods should be placed where customers can see then easily. Certainly, the best space should be given to departments or merchandise producing the greatest sales and profits.

Equipping the Physical Facilities

The final step in arranging for physical facilities is the purchase or lease of equipment and tools.

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Small Business Management: An Entrepreneurial Emphasis

Machines used in a factory may be either:

1) General-purpose equipment – machines that serve many functions in the production process; requires a minimum investment and is easily adapted to varied types of operations.

2) Special-purpose equipment – machines designed to serve specialized functions in the production process; can reduce costs in industries in which the technology is fully established and capacity operation is more or less ensured by high sales volume; the initial cost of such equipment is much higher, and it has little or no resale value because of its highly specialized function.

Small retailers need merchandise display racks or counters, storage racks, shelving, mirrors, seats for customers, customer pushcarts, cash registers, and other items to facilitate selling. If a store is intended to serve a high-income market, its fixtures should display the elegance and style expected by such customers.

The business plan should list the major pieces of equipment needed to furnish a business office:

1) Fax machines.2) Copiers and printers.3) Telephone systems.4) Computers and e-mail.

All new ventures, whether they are retailers, wholesalers, manufacturers, or service businesses, should be concerned with projecting the appropriate image to customers and the public at large. The appearance of the workplace should create a favorable impression about the quality of a firm’s product or service and, generally, about the way the business is operated.

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