We just bought our first house and it has a small yard, but hooray, it is our own! We love to entertain and need some tips on how to most effectively furnish our small outdoor space.
Before you run out and buy furniture for your small outdoor space, think about how you are going to use the yard. Is it is going to be for outdoor dining, hanging out with friends, relaxing, or all of the above? Since your space is small you need to prioritize based on how your family will use it. For example, decide if a table for dining is important or if you might prefer a seating area with a smaller table for gathering and having less formal meals.
Next, it is really important to distinguish this area in your yard. Do you want to be in the shade or can you get by with a sunnier spot masked by an umbrella. You can set up shop on the grass or create an area with beautiful natural stone as your flooring. If you decide to go with stone, remove the grass and level the area with sand. Then add a weed barrier under the stone so weeds do not grow. If a country path is more your idea, loosely place slate tiles and plant moss or other step-able plants in the "grout" lines to give the small outdoor space that aged look.
As for furniture for your small outdoor space, weather resistance is key. One option is Smith and Hawken. They carry an amazing selection of weather proof products from Teak to a synthetic reed which is woven like wicker that is moisture proof. Both products will stand up to the elements. When choosing cushions for seating, remember that the fabric as well as the stuffing should be weather proof to avoid mildew growth.