Starting a single location sawmill business

[chappy]

Hi,  I am totally new here and was wondering if anyone has some information they could make available.  I am thinking about becoming self employed and buying an existing sawmill business, but to get funding I have to write a business plan.  I didn't know if some of you out there had any examples for me of your own business plans and or suggestions on things to look for, consider and that sort of thing.  The current mill is a 1-2 man operation and only rough cut green.  There are no other mills in the area.  If you have any other questions for me that would help you to give me better guidance then please ask away. 

Thanks,

Chappy in NY

[timberfaller390]

Is it a band mill or a circle mill. I have just started my business Appalachian Hardwoods Lumber and Logging, so I will be glad to here some of the responces you get.

[Meadows Miller]

Gday Chappy

Welcome to the Forum Mate You have come to the rite Place

Ive got a buisness plan that Ill try to upload for You in the next week . with the sawmill make sure its in good condition Because You dont want to be buying someone elses Problems . I leased a sawmill at the start of last year and it sett me back about $20k out of pocket over 4 months I had a good supply of logs but couldnt get a day in without a minor to major breakdown with 2 blokes wages to pay while Your fixing somthing money adds up quick let alone the cost of the repair (Yes  I was trying to take a shortcut to getting extra production without the capital outlay on equipment   : . I had the cleanest mill around tho ;) :D
And make sure that You have a good supply of logs preferably with a supply agreement or contract You dont want to take over then find out 3 months later that the logger has decided to sell His logs elsewhere or cant get enough logs to make the sawmill viable it happens alot with small sawmills when You get hold of a good logger hold onto them and make sure You have atleast 3 loggers that you buy logs from as to even things out on the supply side of things . loggers will be verry reliable with You and keep You updated on what There up to Aslong as you are ontime with payments .

What size type of sawmill is it and how much are they producing per day/year? Also how much experiance do You have with sawmilling and have You used this type of gear before?

Reguards Chris McMahon

[breederman]

Check out the business board, also click on Forum extras at the upper right of your page, then click on the knowledge base.

[backwoods sawyer]

Is the mill in operation now or was it mothballed?

If it operating now ask to take a look at there books, bring in you accountant when you do this. That will give base lines for your business plan, but be aware that there will still be unexpected cost at every turn for the first couple of years. 

Bringing a mill out of mothballs is even more expensive!!!!

[cheyenne]

Also contact your local chamber of commerce they will be glad to help you. Include a demographic study as part of your business plan & remember bankers love paper even if they don't know what it means. If they want your house & personal assets as collateral don't do it.Know how to value the assets your buying. The market is flooded with dead sawmills & every other kind of business it's a buyers market & it's going to get worse.    Cheyenne

[bandmiller2]

Chappy,are you handy,engine repairs ,welding,millright belts pulleys ect.?? every mill is a custom mill its tough to make it if you must hire someone to do everything.Frank C.

[Ron Wenrich]

Your business plan is going to have to have the entire operation spelled out, especially if you're going after any type of financing.

Most mills don't make it due to log supply.  If you're going to be buying logs, you have to have a very stable base.  Successful mills in our area have their own crews.  Very small mills can get some logs off of loggers, but they have a rough time competing for anything with quality.  Low quality in is going to be low quality out.  Loggers can kill you if you know nothing about grade and pricing.  Don't ever think you can rely on free logs.

If the log supply wasn't rough enough, you also have to have a stable lumber market.  Niche markets can pay the bills, but you need something that can be relied upon for a steady income.  Railroad ties are a stable market, and pay fairly well.  Grade lumber is a good market if you can put out enough volume to avoid degrade.  There is a wide variety of values that come out of a single log.  Don't forget income from residue like sawdust or slabs.  

You must be able to break down your manufacturing costs.  Profit = lumber price - log costs - manufacturing costs.   Its necessary to keep those costs in line.  A broke down mill will cost you money in both repairs and lost production.  Your production costs/mbf will be directly related to the volume you produce for the capital invested.  If volume is too small, your costs may be too high to make a profit.

As for no mills in your area, you better look real hard why there isn't any, and include that in your business plan.  No timber or no sales, are pretty good reasons.  Your competition may come from several counties away.  As loggers, we cast a pretty wide net, about a 50 mile radius.  As a sawmill, its even wider.  We've been able to truck lumber 300 miles and take sales away from mills in the customer's backyard.  They wouldn't deliver the kind of product we would.  

[Bibbyman]

Everything Ron said. 

You may spend some time going over the "loglot problems" topic that pretty much gives a history or our log procurement problems and others as well. 

We're just a "mom and pop" operation.  Times now are hard all the way around and are lucky we have everything paid off and only have to feed ourselves and not have employees.  Fewer, smaller orders,  soft prices, etc.  Even fewer requests for custom sawing. We're able to hold on right now by getting some repeat business and a few niche orders.

But I think it would be real hard right now to go out and compete for orders and logs. 

I can't give any advice on business plans, but one thing I'd think about adding is some commitments from loggers to supply logs and some committed market.  It's one thing to list all the log sources and all the lumber markets.  But that's all bird in the bush until you talk with them and they say they will work with you. 

I know from experience that big outfits (loggers or brokers) are reluctant to work with a small, upstart sawmill because of volume and quality issues.  I doubt if they'll talk to you at all in these slow times.  We had that problem years ago. 

Years ago a local broker wouldn't take lumber from us because of all the "unknowns". But then we got to do business with another buyer further away that put very strict quality standards on us and was really taking advantage of us in many ways.  But after a year went by,  we went back to the local broker and because we'd been successful in our other sales,  he agreed to "give us a try".  We did good business with them for three years or more until they changed hands.  We've been doing business with another much larger market for a year now and when business hit a downturn,  they cut off a lot of mills but kept us on the approved list.   But every month we get a quota of the maximum we can deliver.  From month to month we don't know how much business we'll be able to do with them.

A wife with a good job and insurance would be your best asset.

[backwoods sawyer]

A wife with a good job and insurance would be your best asset.

I second that...

[cheyenne]

Just an after thought; Where in N.Y. and why are they selling. I'm in N.Y. also maybe I can help.....Cheyenne

[Tom]

A wife with a good job and insurance would be your best asset.

I agree wholeheartedly!  As a matter of fact, I'm such a believer that I have recently suggested that wife get a second job since the first one is being so convenient and lucrative.  There are a lot of things I could do with some more extra money.  ;D

[logwalker]

Tom, one of them would be to hire a good divorce lawyer.  :D :D :D

Reminds me of the old country song by Tompal Glaser that went:

"Put another log on the fire.
Cook me up some bacon and some beans.
And go out to the car and change the tyre.
Wash my socks and sew my old blue jeans.
Come on, baby, you can fill my pipe,
And then go fetch my slippers.
And boil me up another pot of tea.
Then put another log on the fire, babe,
And come and tell me why you're leaving me."

[Meadows Miller]

Logwalker and Tom I know that song Well  ;) :D :D :D :D :D ;D But was glad when I left her ;) ;D 8) 8) Hmmm now that reminds Me of another song that goes somthing like this .

Now Im free to do I want any old time
Yes Im free to do what I want

You Know the song   ;) :D  :D;D ;D

Chris

[ARKANSAWYER]

  If you do not know the lumber industry then do not buy a sawmill.  Take a week and come to Arkansas and let me show you the business from the bottom.   It is hard to get a bank to loan on a lumber manufactoring plant.  I know I have tried for years.  Unless you have about 50% of the buying price you may find it very hard to get help.  Business plans for sawmills is hard because very few bankers understand any thing about sawmills and most do not believe that you can take a tree and make lumber from it.  Lumber comes from Home Depot and they import it from Canada.

[DanG]

Arkansawyer is da man dat knows!  I'd like to change one little thing he said though: Do not borrow money to buy a mill if you don't know the business.  In other words, if you don't have a bunch of experience, buy what you can pay cash for, and learn the business from the ground up.  If you have to borrow to get the mill, make sure it is worth more than you owe on it.

[chappy]

I appreciate all the advise so far.  I do not have any experience sawing so far.  I have been spending every weekend with this sawyer for a few weeks now.  He is located between Buffalo and Rochester, NY.  Good supply of logs from 2 different loggers mostly cutting hemlock.  I was actually amazed at the amount of people that come to him with their own logs to be cut.  I have seen his ytd and past two years financials and things are on the up and up.  He has a 2yr old LT70 wm w/ bells and whistles still under 4 more years of warranty.  He is not moving because of lack of business but because of strong family ties and that is why he is selling.  We are actually looking into a partnership so I can learn from him for at least 6 months everything he has been doing.  He has been a sawyer for 20 years now and I could learn alot from this guy.  He is customers have all said while I have been there if they will be taken care of while he is gone.  I will probably still have to come up with a plan, but the bank said they would be more willing to lend to me with my lack of experiece if he and I were partners.  Lets just say they like his numbers but don't like my lack of experience.  So we are not rushing into anything.  We both decided, Lord willing, that we can walk toward this slowly and get to know each others family better.  This guy has 8 kids and I have 3 and one on the way.  He is very interested in making sure I am committed to learning and providing the same type service he has been.  Pretty cool.  He is just a small Mom and Pop place also where he only supports his family.  We have moved from me totally purchasing the business to seller financing to now working on a partnership.  Thanks again,

Chappy
Western New York

[TexasTimbers]

I was actually amazed at the amount of people that come to him with their own logs to be cut. 

IMO you shouldn't even count this in as part of your plan.

We are actually looking into a partnership so I can learn from him for at least 6 months everything he has been doing. 

Bad idea any way you slice it.

.... but the bank said they would be more willing to lend to me with my lack of experiece if he and I were partners. 

Let me translate that for you:

We need more assets to come after than what you have alone. Talk the seller into throwing in his lot as well and we will consider loaning you the money if you come up with half down.

No bank, especially today, is going to consider a loan on a small timber related activity that isn't drastically titled in their favor from day one.


I would advise you to simply work for him for several months. If he is really interested in selling it to you he'll do that. Just be an hourly grunt. learn the business upside down and backwards, as much as is possible in 3 or 4 months.

Your inexperience is your biggest weakness. Doing this deal before you even have any idea how weak your weakness is, is a big mistake IMHO.

[sjh]

Chappy
Would this operation be in Orleans county. Pm me if you like.
Scott

[cheyenne]

Not to be a nay sayer or rain on your parade but if you can't pay cash out of your own pocket walk away 6 mos. form now he'll take less also if your not buying the property with the mill it's a fools paradise.......Cheyenne

[backwoods sawyer]

I looked into buying a working sawmill operation with an LT-40 SH and found that I could take the down payment and pay cash for all the main equipment and get an LT-70 and not have a monthly payment. This has allowed me to build my own operation based on my own reputation.

Just because he is making a profit dose not mean that you will. What I mean by that is he has 20 years of equity built up and you will be making payments on all that equity. Those payments was the profit that he was living off of, there may not be enough left over after the bank gets there's, for you to maintain the operation and live on. You will need a considerable amount of working capital. The cost of logs is not always flat and as you can tell by his log yard, you will need to keep quite an inventory.

I am not saying it can't be done, but if you do decide to go forward with this keep both eyes open, it is real easy to get tunnel vision and go like a bull in a china shop only to find out later that that you missed part of the larger picture.

[logwalker]

Those 8 kids have to be eating something. Is his wife working outside the home?

I think if you are willing to give it 6 months you should have a good idea if it will work or not. I assume you don't have a lot of debt of your own. I only see it working with cash or owner financing. Keep the banks out of it.

Joe

[Cedarman]

How much free labor did some of those 8 kids chip in?
I have my wife and kids help out as much as possible.  That expense doesn't show on the books.

[ARKANSAWYER]

  Look at all the tax write offs you are missing.

[cheyenne]

The problem with tax write offs is there is no such thing. Because first you have to spend your money to get the write off. Your further ahead taking the money as a bonus or a raise in salary......Also if you go ahead with this deal, Get a covenent not to compete with a large mileage base in it.......Cheyenne