Starting A Small Business: Budgeting for Office Furniture
The single most important aspect of any startup small business plan is accurate budgeting. Though a small business owner cannot control their sales and revenue forecast, they can be very diligent when it comes to accurately creating a startup budget. Part of this diligence requires a small business owner to get accurate information on all costs associated with starting their business. One of those costs that is often glossed over with general estimates or overlooked all together is the cost of furnishing an office. This article has been written to help a small business owner more accurately forecast small business office furnishing costs. The article’s approach is to take a 1,800 to 2,000 square foot office space and evaluate it in a good, better, best scenario.
Before making a decision about which office furniture classification is best for your needs, a business owner should ask themselves a few questions that will help a small business owner clearly understand what is driving their decisions on cost and quality.
Tom Loughney, who has over 17 years of office furniture experience in the Dallas area as the proprietor of both Business Furnishings Inc. and Cubicle Depot, “Any important capital expenditure for a business usually comes down to answering two important questions: what do we need to buy and how much are we willing to spend? Outfitting an office is no exception.” Loughney continued with, “"You have to ask yourself, is this a short term expense or a mid to long term investment? This will drive your thinking as you examine your options.”
We’ve taken this insight and expanded the question list:
- Are you looking for the absolute lowest cost? Is this an investment in your business or simply a short term expense that has to be dealt with.
- Do you have the time to source your furniture, assemble it, and deal with potential returns or are you looking for a vendor to provide these services end to end?
- What does image do for you in front of your customer and their perceptions of your quality and value?
- Are you concerned about the environment?
- Do you or any of your employees have back problems or circulation issues? Are your employees in front of computers for long periods of time and susceptible to carpel tunnel?
Though softer factors such as customer perception and employee comfort might not fit nicely on a budgeting spreadsheet, these are very important. According to the San Diego Business Journal, the environment of an office is nearly as important as the product or service being offered. As author Lee Zion explains, "An aesthetically pleasing work area can create a mood that helps secure new business, as well as attract and motivate employees."
Does Where You Make Your Purchase Matter?
After you have narrowed down your decision drivers, it is fair to begin to evaluate how you will best source what you are looking for. Answering the "who" part of the question is often mistakenly directly to price on a per item basis. However, often one can engage a dealer broker who can help the business owner to acquire the best quality achievable within their budget while eliminating soft costs such as lost time related to returns, assembly, missing parts, and overall price shopping.
"If furnishing your office is just an expense to you, and you don't care about quality, durability, and customer service, you might as well just buy the cheapest product from the cheapest source. What you buy may not be good, but you'll certainly save some money up front." Commented Tom Loughney. “We find that our knowledge of the industry which includes high quality refurbished products and more affordable name brand alternatives help us to work with a customer to meet their budgets while generally finding a better match of furnishing for their needs.”
Large box retailers have found success in mass producing furniture with an emphasis on offering products at a lower price than competitors. The question is what experience you are getting for your money. The following online discussion of office furniture highlights one such retailer that is known for "low price".
A simple example can illustrate some the "hidden" costs that can arise from making a price-based purchase. Consider, for example, the amount time that might be necessary for returning damaged product or getting it repaired. Estimating conservatively, assume it takes 1/2 hour to conduct each of the following: assessing that something is missing or broken, traveling to the retail location, waiting for customer service at their busy store, discussing the issue with an employee, checking out with either a new product or new parts to install, traveling back to the office, conducting the repairs. This best-case scenario would return simply return the piece of furniture to working condition. If the employee who carried out these steps makes $10/hour, then $30 has been wasted on furniture repair as opposed to being invested in the employee's normal duties that create value. Consider the opportunity cost of said value, the lost time without the furnishing in working condition, the likely potential that the entire process will take longer than 3 hours, and clearly the initial "savings" does not carry through the life of ownership of the product.
In the end, finding the right source, can be one of the most important steps in the process.
Good, Better, Best
In order to help a prospective business owner properly manage their dealer/broker or even make the decision as to what furnishings they buy direct from a large box retail and which ones they impose on a dealer, we worked with Tom Loughney of Cubicle Depot to created a good, better, best scenario and created budgets around a fictitious office space that is approximately 2,000 square feet. The requirements for furnishing this office space are a reception area, a break room, a conference room, a master office, and a work space holding up to four cubicles. The pricing we determined was based off of Summer 2008 market rates and is highly dependent on fuel prices since shipping is a key expense line item in the furniture business.
Furniture classified as good meets the minimal criteria for professional office furniture and is generally considered when cost savings is the primary concern of the business owner. An office furnishing set in the good class would general combine laminate construction desks and tables with leatherette chairs and potentially some used chairs or cubicles. Though laminate construction has improved in quality significantly over the past decade, it will not outlast solid wood and wood veneer furnishings. Last, pieces in this price range should not be considered ergonomically designed. Good furniture is generally targeted for office environments where end customers, partners, and suppliers are not expected to be visiting in person.
For our good furniture budget we came up with an estimated price of $6,724 consisting of the following representative of items.
Good Furniture Budget
Furniture classified as better is generally considered to have a longer life and consist of wood/wood veneer and leather materials that aesthetically appear more professional. Furthermore, used pieces in this classification are generally refurbished and feature new materials, paint, and coatings. Though some used or refurbished pieces might be ergonomically designed, this is generally no a guaruntee in this price point. Better furniture is generally targeted for office environments where end customers, partners, and suppliers will be visiting; however, the business owner is looking to constrain their budgets as much as possible.
For our better furniture budget we came up with an estimated price of $19,129 consisting of the following representative of items.
Better Furniture Budget
Furniture classified as best generally consists of new furniture constructed of materials such as wood, glass, leather, or contemporary meshes and are designed for ergonomics and longevity. Furniture in this grouping should be the target of a business owner who is looking to achieve a certain look in their office. These business owners are generally very conscious about employee health (back) and the way the furniture will look in 5 years.
For our good furniture budget we came up with an estimated price of $24,939 consisting of the following representative of items.
Best Furniture Budget
Trade Off Decisions
Any budgeting exercise requires trade-off decisions. The question is where do you make trade-offs. In order to save money, back office shelving and filing cabinets can be purchased as used or of lesser quality at a big box retailer in order to squeeze more out of a budget. However, one area that really shouldn’t be considered for budget cutting is ergonomics.
As detailed in a 2008 OfficeSolutions article by Mark Rowh, employers would be wise to place a high priority on this area. He qoutes Julie Landis, COO of the consulting firm Ergo Concepts, as explaining, "More companies are now realizing that ergonomics programs help retain valued employees and save money." Ergonomically-designed chairs can help reduce carpal tunnel syndrome, can provide enchanced back and neck support, and help reduce other potential chronic injuries that can reduce worker productivity and increase health costs for businesses.
Some start-up businesses don’t know whether they will survive their first year, thus, longevity isn’t top of mind. Other startup businesses know that they will completely outgrow their current environment in a year or two and will want to refurnish their environment under a totally different budget and standard. Still, the decision to purchase lower quality that has a shorter life span must be accounted for as a future expense."If you buy something that is only going to last a year or two, eventually it will have to be replaced. And if the quality isn't good, it may have to be repaired at some point. That's more money coming out of your pocket. But, if you buy furniture that is durable and backed up by a guarantee from a reputable dealer, it will last four, five, maybe six years. And if there are problems, you'll be a valued customer and be taken care of. We'll know your name, we'll help you install your furniture. You won't just be a number in some huge customer index," commeted Tom Loughney.
Furnishing an office is an investment and expense that must be budgeted. Business owners who take the time to understand their decision drivers and match that up to the most appropriate offerings in the industry will ultimately have more success in both the short term and the long term. We developed the the good-better-best scenario in this article to help guide businesses make a higher quality decisions and purchases that better matched their needs. We’ve also interjected the realities of business image, ergonomics and longevity that should be factored into the overall decision.