The rising cost of rising gas prices

Whether you own a jingle-spouting ice cream truck or a velour-draped women’s clothing boutique, nothing is more important for the success of a small business than location.
“The fundamental thing is,” says Joseph Paradi, a management and entrepreneurship professor at the University of Toronto, “can you get the customers who need your goods?”
He says smart entrepreneurs know their products and 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 says there are many factors in choosing the right spot, and that a careful consideration and calculation of cost is crucial. First, he recommends, entrepreneurs should research Statistics Canada demographic data, accessible on 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 then recommends starting small with a small store, anywhere from 1200-1500sq/f, and says 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 says,  adding that 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 with the goal of working 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,” says Sunny Verma, president of the tutoring startup 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,” says 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 $30sq/f in underdeveloped neighbourhoods, most mall spaces start at $80sq/f 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, says 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.
Then, 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, says Roos, Toronto has foot traffic, low taxes, a talent pool and driven entrepreneurs that make it a perfect city for new businesses. And, she adds, success is just around the corner for anyone in the right location.
“It’s about gathering information to make informed, fact based decisions,” she says. “It all comes down to planning.”

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Filed under Business, Journalism, Print, Toronto Business Times

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