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My New Sawmill Partnership

Started by SawyerTed, May 25, 2018, 11:36:33 AM

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SawyerTed

A friend's son just graduated from the local community college so I went to the graduation party.  At the party, a gentleman struck up a conversation with me about my sawmill business.  Not sure how he knew about it but he was well informed.  

This gentleman operates a firewood business and supplies several businesses that sell the firewood.  He buys his logs by the truck load.  He has many logs above his preferred diameter. He asked me to come take a look to see if I could use those logs.  He has ash, oak, sycamore, pine, poplar, beech, cherry and walnut logs 24" and larger available. 

Besides a very large firewood processor and all the support equipment for that, there was a Timber king bandsaw and edger.  

Bottom line is he can't operate both sides of the business - firewood and sawmill.  The sawmill and edger have been sitting for 5 years.  He wants me to operate the sawmill/lumber side of the operation under my company.  I can use either his mill or my mill and his edger as well as needed support equipment-rubber tire loader, tractors, two ton truck etc. The only pieces lacking a kiln (but I've got that to contribute) and a planer/molder.

Without too many details, we are working on the written agreement, consulting insurance and other due diligence etc just to cover our bases.

It is an great opportunity to expand capacity without spending a lot of money.  His operation and equipment are under utilized.  The sheds are already built.  My contribution will be sweat equity.

We are giving it a week or so of though on both sides before we proceed.
Woodmizer LT50, WM BMS 250, WM BMT 250, Kubota MX5100, IH McCormick Farmall 140, Husqvarna 372XP, Husqvarna 455 Rancher

mad murdock

 Congratulations on the prospect. Looks like the synergy of you and he getting together will really work well. Good luck moving forward 8)
Turbosawmill M6 (now M8) Warrior Ultra liteweight, Granberg Alaskan III, lots of saws-gas powered and human powered :D

WV Sawmiller

   Good luck. Sounds like a good deal for both of you and I trust it will work out well for both of you. You both bring significant assets to the table.

 Just me but I would not go into this as a partnership in the legal sense of the term. I would be afraid to lose control of my time and equipment. Also in many partnerships a sense that one or the other is doing more or less than the other and hard feelings develop. I had an old boss one time whose most accurate observation was "Nothing in life is 50/50." If you think it is you will be very disappointed whether in business or your marriage.

I would do as a contract with him where he provides the logs, the working space and use of any of the other equipment you would find useful then I would either:
1). Charge him a sawing fee or
2). I would buy the logs from him at a pre-determined rate.
3.) I would saw for a share of the lumber or (If you do this be very careful to define how the shares will be determined - I'd do either of the other 2 first if possible.

 I would think that would reduce my liability and give me more flexibility. If he wanted to market the lumber he could just pay you to saw the logs. If you wanted to market the lumber you could buy the logs or saw on shares if he wanted some. You would have to work out the storage of the lumber and access by customers to his site if the lumber stays on his site. You might work out a commission fee to him if he sells some of your lumber while you are gone if you want to do something like that. Lumber customers on his site increases his liability but also provides advertising and potential sales for firewood.

 That leaves you free to continue your sawing business with others if/when you find that is more profitable or during slack periods when he may not have enough logs to keep you busy. If he has too few logs to keep you busy you take on other work. If he has more than you can saw then he can hire someone else to saw them or you can subcontract that to another sawyer.

 There is a ton of potential here as you have described the situation and it looks like a definite win/win for both of you if you handle it right. Be sure to leave room for both you and the customer to change as new situations occur.
Howard Green
WM LT35HDG25(2015) , 2011 4WD F150 Ford Lariat PU, Kawasaki 650 ATV, Stihl 440 Chainsaw, homemade logging arch (w/custom built rear log dolly), JD 750 w/4' wide Bushhog brand FEL

Dad always said "You can shear a sheep a bunch of times but you can only skin him once

SawyerTed

I appreciate the advice and insights.  There's alot to consider that's why we are giving a week before we get back together.  We've discussed the three arrangements you outlined and the possibility of trading sawing for firewood. I'm leaning toward buying logs for lumber I would sell or use and sawing on shares for lumber he wants. This makes the partnership or affiliation less intertwined.
Woodmizer LT50, WM BMS 250, WM BMT 250, Kubota MX5100, IH McCormick Farmall 140, Husqvarna 372XP, Husqvarna 455 Rancher

Crossroads

This sounds exciting, I wish you the best.....
With the right fulcrum and enough leverage, you can move the world!

2017 LT40 wide, BMS250 and BMT250,036 stihl, 2001 Dodge 3500 5.9 Cummins, l8000 Ford dump truck, hr16 Terex excavator, Valley je 2x24 edger, Gehl ctl65 skid steer, JD350c dozer

Magicman

I would think that the more separated and individualized each "business" is the less chance of any conflict.  The value of each product and added value of that product must be accounted for.
Knothole Sawmill, LLC     '98 Wood-Mizer LT40SuperHydraulic   WM Million BF Club Member   WM Pro Sawyer Network

It's Weird being the Same Age as Old People

Never allow your "need" to make money to exceed your "desire" to provide quality service.....The Magicman

Southside

It sounds good, but like the others said find a way to keep your businesses separate. What is he going to say when you sell a single walnut mantle for the same money as he sells a cord of wood? 
Franklin buncher and skidder
JD Processor
Woodmizer LT Super 70 and LT35 sawmill, KD250 kiln, BMS 250 sharpener and setter
Riehl Edger
Woodmaster 725 and 4000 planner and moulder
Enough cows to ensure there is no spare time.
White Oak Meadows

SawyerTed

Yes I agree with the "partnership" being more of relationship between two businesses rather than either being subordinate or a contractural relationship.  You know a lot of our sawing is based on a handshake agreement anyway. Isn't it?  Maybe I'm assuming so.

How many of you have a written sawing agreement for your mobile sawing?
Woodmizer LT50, WM BMS 250, WM BMT 250, Kubota MX5100, IH McCormick Farmall 140, Husqvarna 372XP, Husqvarna 455 Rancher

WV Sawmiller

   I have a written contract but so far have never used it. All handshake agreements. Never been stiffed on my pay yet.
Howard Green
WM LT35HDG25(2015) , 2011 4WD F150 Ford Lariat PU, Kawasaki 650 ATV, Stihl 440 Chainsaw, homemade logging arch (w/custom built rear log dolly), JD 750 w/4' wide Bushhog brand FEL

Dad always said "You can shear a sheep a bunch of times but you can only skin him once

TimGA

Sounds great,  I am with others keep it separate keep it simple.  If you use his equip pay for it same for him. If someone feels taken advantage of it will never work. Good luck.
TK2000, Kubota L3130GST, grapple, pallet forks, 2640 Massey w/loader (The Beast) Husky saws Logrites One man operation some portable most stationary.

Southside

Small stuff, day job portable work is on a handshake, but my larger orders all come with a PO. This way everyone is clear about the expectations and should something happen along the way to one party or the material it's not a he said she said scenario.
Franklin buncher and skidder
JD Processor
Woodmizer LT Super 70 and LT35 sawmill, KD250 kiln, BMS 250 sharpener and setter
Riehl Edger
Woodmaster 725 and 4000 planner and moulder
Enough cows to ensure there is no spare time.
White Oak Meadows

StimW

I look at this as the degree of difficulty of each business.
Firewood- probably about a "2" not a lot of skill needed to cut/split/stack.
Sawmilling- about a "6" to produce quality boards from selected logs.
If milling was easier his equipment would not be idle.
I see problems in the future.
  
New HF Band Mill
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SawyerTed

The sawmill and edger went idle when he added the firewood processor.  He's a one man operation and the firewood business grew quickly. His processor will produce 5-6 cords per hour. But that's using logs 8 to 18 inches in diameter. Logs over 18 require more time to process so they become lower priority.  He's been paying a man to cut and split the larger logs using a chainsaw and splitter. 
Woodmizer LT50, WM BMS 250, WM BMT 250, Kubota MX5100, IH McCormick Farmall 140, Husqvarna 372XP, Husqvarna 455 Rancher

Randy88

Never enter into any kind of partnership ever, seen far too many go bad after a short time.    Keep your own stuff separate at all times, I'd not look at it as his equipment being under utilized, I'd concentrate more on what and where you want to be in say five or ten years from now and focus on that.      

Right now his excess is his problem, don't make it yours as well, expansion is nice, but can shortly become a burden in a very big hurry and trying to get out can be very costly and time consuming.     

I don't know your situation at all, but I'd tell you to stay focused on what your doing now and where you'd like to be in the future, and if say for example, if something would happen to you and you'd need to to change careers or hobbies and ask yourself, what would it take to get out if you wanted or needed to.       

Partnerships are a huge mistake, and you don't need a week to think this over, you need months at a minimum and maybe longer to think this over.       Try a rental agreement on his equipment or rent to own type agreement and also rent his buildings for a portion of the lumber sawn type deal, much more flexible.

Remember, those doing the work together hardly ever have a problem, its usually a spouse, or kids that cause the issue.     Also you've never stated his financial situation, is everything paid for on his end, is he making payments and what would happen if he got sick or injured, would someone show up and take stuff away due to no payments being made or would your costs sky rocket overnight.     

I'd highly recommend you get legal help from someone you trust in your area and work with them on this deal, its usually far cheaper and less complicated to get good legal help before the fact than during or after the fact, lay everything out to them and have them help you with the suggestions and details that work best for you, both now and long term.      Best of luck.

longtime lurker

yano there's two things I've learnt over the years that would apply here

1. you ALWAYS want a written contract if its not just a one off kind of thing. This is going to be ongoing for years and the quickest way to solve any dispute is to have a formal written agreement to fall back on. That doesn't mean you cant change it as you go to suit you both - but a handshake isn't worth beans in court, and if the guy is serious he wont fight you on getting one. If he does fight you.... not i dont see the point but okay but an outright no - then run and keep on running.

2. the only partner you want to have is a bank manager, because all he ever wants is interest. I've had to buy out a couple of partners over the years and got to do it again soon and when you've done 90% of the work having to give up more then 10% of the value increase hurts. its yet another reason you want a formal contract if this is going to be ongoing.

Thats about a ½ million dollars worth of advice right there. don't my mistakes unless you can help it.
The quickest way to make a million dollars with a sawmill is to start with two million.

PA_Walnut

Quote from: longtime lurker on June 06, 2018, 05:22:51 AM2. the only partner you want to have is a bank manager, because all he ever wants is interest. I've had to buy out a couple of partners over the years and got to do it again soon and when you've done 90% of the work having to give up more then 10% of the value increase hurts. its yet another reason you want a formal contract if this is going to be ongoing.


Yoda-like words there! Another one, "Partnerships are different at first, but always the same in the end. :-\
I own my own small piece of the world on an 8 acre plot on the side of a mountain with walnut, hickory, ash and spruce.
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Peterson Dedicated Wide Slabber
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petefrom bearswamp

seems like one partner always works harder that the other for the same results.
My BIL had a dairy partnership go sour after several years and lost his shirt, now works 2 jobs to make ends meet.
BTW he was the harder worker the other guy liked to play golf.
Kubota 8540 tractor, FEL bucket and forks, Farmi winch
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57 acres of woodland

SawyerTed

I appreciate the wisdom and experience shared.

Partnership was a poor choice of words and by the strictest definition misleading in this context. 

What has developed is an alliance between two businesses.  We are doing business with each other as a matter of convienience and competitive advantage for both.  We both view it as a win-win situation.  

I'm sawing his logs on a board foot basis for him.  I'm buying logs for my own use.  His location is essentially another portable sawing venue with support equipment provided by the owner.  I'll just be sawing there on a more frequent basis.

His firewood processing business stays his and my portable sawmill business stays mine.  No need for contracts.  The two businesses can do business together or not.
Woodmizer LT50, WM BMS 250, WM BMT 250, Kubota MX5100, IH McCormick Farmall 140, Husqvarna 372XP, Husqvarna 455 Rancher

Rhodemont

I like the sound of the way you are proceeding.  Otherwise if there were a partnership I would be in favor of a very complete operating agreement drawn up by some very expensive lawyers.  In your initial post you referenced "sweat equity".  I learned long time ago that "sweat equity" is not worth anything in the end, it is he who controls finance (or loses control of finance) that controls the destiny of the business even if it is called a partnership.
Woodmizer LT35HD    JD4720 with Norse350 winch
Stihl 362, 039, Echo CS-2511T,  CS-361P and now a CSA 300 C-O

SawyerTed

Rhodemont, the sweat piece has actually already paid off.  The edger he has was not running.  For about 2 hours of my time and about $80 it is running perfectly again.  He's letting me use it in exchange - cheap rent I suppose.  On my current mobile job, the edger has already more than earned back what I've put into it due to increased productivity. 

 I just need tail gunners who can keep up!
Woodmizer LT50, WM BMS 250, WM BMT 250, Kubota MX5100, IH McCormick Farmall 140, Husqvarna 372XP, Husqvarna 455 Rancher

Southside

What is it for an edger?  I have no idea how I made lumber without mine, they are priceless.  
Franklin buncher and skidder
JD Processor
Woodmizer LT Super 70 and LT35 sawmill, KD250 kiln, BMS 250 sharpener and setter
Riehl Edger
Woodmaster 725 and 4000 planner and moulder
Enough cows to ensure there is no spare time.
White Oak Meadows

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