Search engine functionality

The search box I have on my site at present allows people to search for businesses by business name, but if they put their postcode in or even their town I want it to display those businesses within a certain radius to them (or if searching town, just those businesses with that town name in the address).
My directory is for salons so if users cant see what salons are around their area without knowing the salon name, its pretty much useless.
I have tried searching by town but it will only display the listings with the town name in their actual business name.