How I took over a furniture business 20 years ago to pay off debts and now make kitchens for 850 thousand rubles

In 2003, I rented out space for a furniture store, but the tenant stopped paying. He accumulated debts of 450K, started to take out the property in order to quietly leave. I saw this and in January 2003, I presented him with a fait accompli: either pay off the debt, or the salon with samples goes to me. He left, and I took the store.

Today we have our own furniture factory, we make 25 kitchens a year, the average bill is 850K per set. But there are nuances.

How I Revitalized a Loss-Making Business in the 2000s

The debt was large: 450,000 ₽ then is like 2,000,000 ₽ now. The previous owner left everything: documents, agreements, employees. In fact, the business was working, only applications were missing. In February, the salon was put in order, advertised, received the first orders. The business began to bring in money.

Why I had to make furniture

Throughout 2003, another company manufactured our furniture. At first, we worked like this: we would send them orders, and they would send us finished furniture. Later, we took over the supply of materials. Later, they started bringing us finished parts, and we assembled them in the garage. So, in a year, we made 125 orders, i.e., a new kitchen every three days.

Then the management of that company changed and they stopped working with us altogether. Why – who knows.

Production is additional expenses and a headache. If we could find a replacement for that company, we would go to them. It would be the best option. But there was no choice – outsourcing was not developed.

We started thinking about our own production. In 2005, we scraped together enough money to buy Chinese machines and started making furniture. A year later, we sold it and bought more decent equipment.

The second batch of machines cost €41,000, which is approximately ₽7 million in current money.

How much does new equipment cost now?

We worked on the old machines for 15 years, and in 2021 we decided to buy new ones. Now this is our advantage – most competitors changed their equipment earlier or did not change it at all. We spent 11.5 million rubles on everything.

Of what we had, we sold only one machine, and got 650,000 ₽. Everything else is in place, we just use it much less often.

We paid as best we could. We had money for some things, but not for others – we took out a loan at 10% per annum. I paid for 3 years, this month is the last payment. We simply paid some things in installments. We are still “pulling along” – in total, we have 300,000 left to pay.

The equipment supplier is patiently waiting for me to have money. We have a good relationship: I bought a lot of things from him, and he uses my production as a showroom.

It's ridiculous. They send a guy to me, I show him the machine, he buys it a week later. The sales manager doesn't even come anymore.

How a furniture factory works

It takes 3 months to get a kitchen. An order is placed – within a day we figure out what is needed for it. We immediately buy materials and wait for them to arrive – usually 2 months. Before 2020, everything arrived in 2 weeks.

Sometimes we have materials or a simple order – then we find a “window” earlier, not in 3 months.

The kitchen can be made in a week, of which we set aside 3 days for assembly. Orders are usually complex and large. If something is simple, we will handle it in a day.

Why is it difficult to work on order?

Ikea has it easier than us. They assemble furniture 6 times, carefully check that there are no flaws, and only then send it for sale.

We make individual orders – not a single identical cabinet in a year. Orders are usually complex and large. Everything has to be agreed with the client and any shortcomings have to be corrected in the field.

They call from the address – the part doesn't fit. You quickly make it, and for a magical 500-600 rubles it flies to the client's apartment with delivery.

In order to see and correct the shortcomings, we try to assemble the set at the production facility as much as possible. It is also more convenient and faster than assembling on site.

Also, because of custom work, it is difficult to calculate the cost price of a specific item, plan materials and time. MySklad helps me with this.

MyWarehouse

MyWarehouse takes into account the movement of finished goods, such as household appliances and sinks. Generates primary reports on sales, warehouse, and finances.

We conduct mutual settlements with suppliers in MyWarehouse. It is convenient to make shipments, inventory, and check balances.

MySklad also streamlines work with customer orders. We sign contracts with clients, enter their details, and receive order numbers that we use in subsequent documents. So nothing gets lost.

MySklad is more focused on serial production, and we only make individual orders. Therefore, we do not actually calculate the cost price and profitability, although we would like to.

How to make a kitchen set

Kitchen furniture is most often made from laminated chipboard, MDF, and LHDF.

A sheet of such material is placed on a special CNC machine, vacuum-attached to the base and sawn into parts. Most of the holes are made there.

If there are any holes left that nesting could not make, the parts are sent to another machine.

Then the edges of the parts are processed on a third machine.

We assemble fully prepared parts as much as possible at the production site. The almost finished kitchen set is delivered to the client. Then all that remains is to assemble and install everything on site.

The cost price of this kitchen set is 50 thousand ₽. I also add to this amount the cost of the machines, for this order it is somewhere around 10,000 ₽.

We are selling for 150 thousand, since in addition to the cost price there are other expenses. For example, the work of employees, taxes and rent of the salon.

Expenses and income of the furniture business

According to my personal feelings, the average bill for kitchens here is 850,000 rubles. But there are orders for 2 million and 300 thousand.

Of these 850 thousand, I consider half as the cost of materials. The remaining 425 should be used to cover other expenses, namely:

The workshop rent is 135,000 ₽ per month, of which 115k is rent and 20k on average is paid for electricity.

Salon — 127,000 ₽, 124k for rent, 3k for electricity.

The wages of workers in the workshop are 200,000 per month. Three workers, before the machine upgrade there were five.

The salary of sellers is 80,000 ₽. Two employees, not counting my wife. They work for a salary + percentage. On average, 40,000 per person, but sometimes 80 and 20.

Outsourced assemblers and loaders – 6% of the order value, about 125,000 per month. Assemblers are a separate caste. There are few good assemblers, and they charge a lot.

Taxes are 500,000 per year, 40,000 per month. We pay fairly so there are no problems.

Waste removal from the workshop – 3,500 per month.

MyWarehouse — 3,800 per month.

My salary and my wife's is 50,000 each. A total of 100,000 a month, although it seems to me that we spend less. If we need something big, we take it from the profit. My wife is the head of a furniture store and a salesperson.

Also, about once every 7 years, we need to change the samples in the salon, no one gives them to us either. We sell outdated samples at a discount.

In short, there are a lot of expenses. I made a table:

Last year the turnover was 25 million ₽. I'll calculate it on it. The revenue per month is 2,080,000 ₽.

For the last three years, profits have been spent only on machines. Thank God, this will end soon. Otherwise, I'm already hungry.

Employee Management

In the 1980s, as a schoolboy, I worked in a factory. Back then, everyone worked on a deal, and that seemed fair to me.

I grew up, I had my own production, and I transferred this system there. And at first it really had more advantages.

Here's a guy who works for a month and gets 15,000. He comes in dissatisfied to find out why it's so little. And you explain to him: so and so, he did so much. The lazy worker leaves without any unnecessary questions, and you replace him with a more efficient employee.

But in recent years there is no one to choose from – people hold on to their jobs. Work at my production facility has become more difficult. And I switched to a salary system: it is easier for me, and the workers are calmer.

I also don't have positions. If an employee can combine the functions of three people, he combines them. For example, new machines do the bulk of the work, and sometimes my workers have nothing to do. Then I can calmly ask them to go clean the basement.

And if you create a position and call it, say, “Master-adjuster of the production section”, then the person will do nothing but his job responsibilities. If you ask him to clean the shop, he will beat his chest, and maybe even leave. And for me, his inaction is a big loss, after all, I am paying for him.

This also applies to me. I am a manager, a designer, a supplier, a lawyer, sometimes a loader and a foreman. And also an SMM specialist and a blogger – I manage social networks so that clients come from there too.

Work schedule

Many entrepreneurs work 24/7. I used to do that too. Then I delegated the bulk of the design work to the sales people – it took up the most time – and I was able to relax.

The workers, by the way, don't work overtime either. Even when we don't meet deadlines, we continue to work on a regular schedule: 9 to 6, five days a week. In emergency cases, we tried to “push” and work overtime – we got defective products and ruined expensive materials. It didn't lead to anything good.

Advertising

In the 2000s

In January 2003 I got a loss-making furniture store. I started buying advertising. In March there were 10 orders, in May – 15, and in November we snatched up as many as 25.

Advertised in newspapers, magazines and on TV.

They quickly finished with printed publications. A square with an ad 4 by 4 cm in the corner of the page gave practically no result. It cost a lot – 3,000 ₽, which is about 14,000 in current rubles.

We went to TV. We bought a package for 160 broadcasts per month for 7 seconds of airtime. The results were great – it was a novelty at the time. There was little competition, the whole city recognized us.

Then they started putting ads at “unpopular” times – during the day or late at night. The price stayed the same, the results got worse. TV advertising stopped working.

By that time we had already moved to a construction shopping mall. 5,000 people came in there every day, exactly 10 times less passed by our salon. We were there for a long time, built up a customer base. In 2012, we quietly moved to a furniture shopping mall, where we are still. Now 50 people come in there every day. We get one or two clients a year from such a flow.

Since 2012, we have been living mainly on word of mouth. We periodically try to buy advertising – so far we have not found anything interesting.

Now

We always do quality work, and because of this we lose clients. The other day, some customers called me, for whom we made kitchens 15 years ago. Some had broken glass, some had scratched the facade – they asked to fix it.

I’m like, “Well, isn’t it time to change the furniture there?” And I’m like, “No, why? Everything’s fine.”

This hurts.

But some clients come back – if they move to another apartment, for example. If not them, then their children or friends. Now most applications come from word of mouth, about 80%. A satisfied customer is the best promoter.

The remaining 20% ​​of leads come from social networks and the website, and applications from there are processed by the salon employees.

The final

Here's what I've learned in 20 years in the furniture business:

— Business needs clients, so advertising is important. My tenant didn’t do it and was left without a business. Although the scheme worked, I appreciated it.

— If you decide to work on order, remember what this is fraught with. Let me remind you:

• complexity of calculations,

• stupid planning of deadlines and materials,

• fixing the shortcomings that can't be avoided,

• communication with clients.

— Quality work pays off, although it can lead to lost orders — people don’t buy new things if the old ones are of good quality.

— The equipment needs to be updated. Even if it costs 11 million and requires 3 years of work.

— Cramming more responsibilities into one person is normal. The main thing is not to name the position and that the employee does not die from the workload.

— There are often duties that can be delegated to others. I would still work 18 hours a day if I hadn’t delegated some of the work to the salespeople.

— If there is outsourcing, try it. It is cheaper than an employee whose services are not needed every day. That is how my loaders and assemblers work.

— Overtime is bad. It’s better without it.

The material was prepared for the blog MoySklad based on an interview with the founder of the furniture production company “Stoletti” Dmitry Pokataev.

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