Choosing where to operate and how to plan for success
📍 Location factors📋 Business plans⏱ 18 min📝 3 practice questions
Learning Objectives
By the end of this lesson you will be able to…
Explain the factors that affect business location decisions
Analyse how e-commerce has changed the importance of physical location
Describe the purpose of a business plan and who uses it
Identify the key components of a business plan
Evaluate the benefits and limitations of business planning
The Basics
Why Does Location Matter?
Key Idea
Location affects costs, revenue, and long-term viability. A poorly chosen location can mean a business struggles from day one — even with a great product.
Revenue-side factors
Proximity to target customers
Footfall and visibility
Competitor locations
Access to growing markets
Cost-side factors
Rent and property prices
Labour costs in the area
Transport and distribution costs
Local business rates and taxes
Location Factors
Key Factors Affecting Location
Market proximity — retailers need to be near customers; manufacturers may locate near suppliers or raw materials
Labour supply — does the area have workers with the right skills at an affordable wage?
Transport links — easy access to motorways, ports or airports reduces distribution costs
Land and property costs — city centre locations cost more but may generate higher footfall
Government incentives — enterprise zones, grants and tax breaks can attract businesses to deprived areas
Infrastructure — reliable internet, utilities and facilities are essential for modern businesses
Digital Disruption
E-Commerce & Location
Key Change
E-commerce allows businesses to sell globally from any location, reducing the importance of physical proximity to customers.
Reduced importance of location
Sell online from a warehouse anywhere
Reach global customers without a shop
Lower-cost locations become viable
No footfall needed for online-only businesses
Still matters for some businesses
Restaurants, salons, gyms need local customers
Warehouses still need transport links
Customer delivery times affected by location
Staff recruitment depends on local labour market
Exam tip: Always link location decisions to the type of business — an e-tailer and a café have very different location priorities.
Business Plans
What is a Business Plan?
Definition
A business plan is a written document that sets out a business's objectives, strategies, market research findings, and financial forecasts — typically covering the first 1–5 years.
Who uses it?
Banks — to decide whether to lend money
Investors — to assess potential returns
The entrepreneur — to guide decisions
Potential partners or co-founders
Why write one?
Forces the owner to think through key issues
Identifies potential problems early
Sets measurable targets to track progress
Needed to secure external finance
Business Plan Structure
Key Components
Executive Summary
Brief overview of the business — what it does, who runs it, and what it wants to achieve.
Entrepreneurs may lack the skills to write one effectively
Exam tip: Plans are valuable but not guarantees. A strong answer evaluates whether the quality and accuracy of the plan matters more than simply having one.
Decision Making
Quantitative vs Qualitative Factors
Quantitative (measurable)
Rent per square metre
Average local wages
Distance from suppliers (km)
Number of competitors nearby
Projected footfall per day
Qualitative (judgement-based)
Reputation of the area
Owner's personal preference
Environmental impact
Community relationships
Long-term growth potential
Key point: Real decisions use both. A location might be cheapest (quantitative) but in a declining area with poor transport (qualitative concerns that override the numbers).
Practice Question 1 of 3
A bakery is choosing between two locations. Site A has high footfall in a city centre but rent is £3,000/month. Site B is on the outskirts with low footfall but rent is £800/month. Which factor would most likely make Site A the better choice?
ASite A has lower transport costs to suppliers
BSite A's higher footfall could generate enough additional revenue to justify the higher rent
CSite A is closer to the owner's home
DSite A has a larger car park
Correct: B. For a retail bakery, footfall is a key revenue driver. If the extra customers from Site A generate more revenue than the £2,200 extra monthly rent, Site A is the better business decision. This is a classic trade-off between higher costs and higher potential revenue.
Practice Question 2 of 3
A new online clothing retailer sells exclusively through its website and uses a third-party warehouse. Which location factor is LEAST important for this type of business?
AGood transport links for deliveries
BProximity to a large pool of skilled IT staff
CHigh street footfall and visibility to passing customers
DReliable broadband and internet connectivity
Correct: C. An online-only retailer has no need for footfall — it has no physical shop for customers to walk past. Transport links (deliveries), IT staff, and broadband all remain important. E-commerce has reduced the importance of physical visibility for this type of business.
Practice Question 3 of 3
A start-up entrepreneur writes a detailed business plan before launching. A friend says "Why bother? Your forecasts will be wrong anyway." Which is the best response to this criticism?
AThe friend is right — business plans are a waste of time for small businesses
BA business plan forces the entrepreneur to research the market and identify potential problems, even if exact figures differ
CBusiness plans are only useful for getting bank loans, nothing else
DForecasts in business plans are always accurate if done carefully
Correct: B. The process of writing the plan — researching competitors, forecasting cash flow, thinking through risks — is valuable even if exact numbers change. Plans also help secure finance. The friend is wrong: while forecasts may be inaccurate, the planning process itself reduces risk.