Walk into a business center. Look around. What will you notice first? For many prospective clients it’s the furnishings.
If you’ve ever been in an office and noticed random spots of dirt on chairs, worn sofa arms and styles that were fashionable about 10 years ago, you’ll know how important furniture is to a first impression. It also becomes outdated quickly. Trends move so quickly, one day it’s mushroom chairs and chrome tables, the next it’s mid-century retro, with mod colors and white acrylic cocktail tables.
One thing that doesn’t sell, however, is wear and tear.
This is only one reason that many business centers are moving increasingly towards renting their furniture as opposed to doling out serious cash to purchase furniture that depreciates the moment someone sits down on it. CORT has become one of our go-to resources when it comes to balancing business realities with the need for productive space and we did a little digging to find out more.
CORT is finding that many business centers are starting to leverage furniture as a key element of their sales and marketing strategy. Depending on a center’s location, client demographics and local competition, using furniture as a competitive differentiator can make a lot of sense. Being able to “swap out” your furniture in a year or two for the latest trendy styles keeps your center fresh and vibrant to tenants wishing to create a hip, stylish impression on their clientele.
But there’s more to furniture as a strategy than meets the eye. Here are some areas to consider:
Creating a Profit Center: Many centers are able to turn furniture into a profit center, by allowing tenants to pre-select their rental furniture from a catalog and enjoy customized furnishings. The resulting markups can lead to a new and potentially lucrative revenue stream.
Operating Capital: According to Ryan Vener, Strategic Account Manager for CORT. “If a business center spends $60,000 dollars on furniture that would have cost $3,000 a month in rental, they have $57,000 less working capital available to them. If they invested that money in revenue generating assets or services at a rate of 10% return (typical estimate), they would save an additional $5,000 dollars in investment returns by renting,” he says.
The Expense of Disposal: When furniture gets old, it may get expensive to dispose of. Paula Newell, Vice President, Strategic Business Development for CORT, recalls a recent conversation with a manager during a bank merger who discovered that disposal of unwanted furniture was very costly – even when he gave it away.
According to Newell, “They didn’t include disposal in the budget for the merger or the closing down of branches. The total project was budgeted at 5 million dollars. They figured out that the cost for disposing of their old unwanted furniture was over $100,000 dollars! He said he gave some of it away to charities but even that cost them $20,000 in deliveries and labor. The other $80,000 was used for disposal – trash dump. After they realized the additional costs associated with disposing of furniture, they began to add the costs to their budget,” she added.
CORT encourages start-up businesses to carefully evaluate the purchase of nonproductive assets.
“Consider renting instead,” says Ryan Vener. “By renting office furniture during their growth stage, businesses can reallocate capital into revenue producing area of their business. And from a future funding or IPO standpoint, renting also helps improve their balance sheet ratios and income statements. Instead of a large, depreciating asset on their books, they’ll have a deductible operating expense,” he says.
It’s important to note that rental is not the ideal model for everyone. There remain an abundance of centers whose owners and operators will always be more comfortable with a traditional purchase model. But the option of rental should not be overlooked. In the end, making financially sound, fiscally responsible decisions that are based on your needs, and don’t demand commitments that exceed the horizon you can see, will help determine whether renting or purchasing your furniture is the better solution.
Ryan Vener leaves us with one last parting thought, “Businesses need to embrace workplace solutions that will optimize all aspects of their business. The investment of capital into areas that produce cash flow and return on investment can be the difference between success and failure.”
Ultimately, the benefits may become apparent for centers willing to do the math and with the creativity to consider their furniture as more of a strategic asset than a depreciating investment.