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Author Topic: Partnersí Agreement  (Read 1441 times)

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Offline Pete1959

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Partnersí Agreement
« on: November 29, 2018, 03:32:48 AM »
I am looking at purchasing a portable sawmill to go into business with a couple that owns a tree service. The mill would be located on their land and the logs we mill will be supplied through the tree-cutting business. What Iím wondering is if anyone has had an experience setting up a sawyering operation with a partner(s) and if youíd be willing to share the language of any partnership agreement with me on the forum? Also, what advice would anyone have about what issues we should consider as we create our own agreement. Thanks for any advice!

Offline Ianab

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Re: Partnersí Agreement
« Reply #1 on: November 29, 2018, 04:30:23 AM »
Personally I wouldn't want to get into an official partnership on this sort of deal, can just get too messy down the track. 

Rather, call it an "alliance". You have a sawmill business, he keep his tree business. If things don't work out as planned, you pack up your sawmill operation and go home. 

Now you need to work out some details, like, is he going to sell you logs, and you market the lumber, or are you going to saw for him on contract, and he then markets the lumber himself? Or even a combination, and you keep track of the logs / sawing / lumber, and who gets to keep what, and square things up at the end of the month. 

If you are set up on his property, or have use of his buildings or machinery, do you pay rent? Or do you give him a discount on his sawing jobs? Needs to be worked out ahead of time. 

Maybe you can then pull the mill out temporarily, and go do other mobile sawing jobs for a few days? As you aren't official partners, this is easier. 

Either way, you are not "married" to each other. As long as the arrangement is mutually beneficial, then you keep on with it. If not, you can move on with no hard feelings, or arrange to come back and saw periodically.

Once you thrash out a deal on how things are going to work (for both of you), then just write up a memo of how you both agreed to work things. Just an informal agreement on how this "alliance" works, but it's written down and initialled, so no misunderstandings in the future. 
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Offline ladylake

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Re: Partnersí Agreement
« Reply #2 on: November 29, 2018, 05:22:34 AM »
 
 I've seen way to many partnerships fail,  sooner or later one will take advantage of the other. Steve 
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Offline ellmoe

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Re: Partnersí Agreement
« Reply #3 on: November 29, 2018, 05:55:39 AM »
" Run, Forrest, Run"!!! Listen to Ianab.  I have a wholesale customer that used to own a kiln located on a suppliers property. Used to, because they lost the kiln when the supplier went bankrupt. Many potential problems, few benefits.
Thirty plus years in the sawmill/millwork business. A sore back and arthritic fingers to prove it!

Offline Ron Wenrich

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Re: Partnersí Agreement
« Reply #4 on: November 29, 2018, 06:06:31 AM »
I wouldn't do partnerships either.  I had a partner when we had a forest consulting business.  But, we incorporated.  That protected our personal assets from our business operations.  It also protects you from your partner's personal liabilities and protects him from yours.  You also don't want to take on any of the tee business liabilities.

I've done some work on the urban forestry end.  Those urban trees look good, but they don't look at all like the forest grown wood.  Quite often the growth is a lot faster than the forest grown, and that means there are less growth rings per inch.  That brings some blandness to the wood.  Not to mention the ever presence of metal.

I did a lot of sawmill work as a subcontractor.  I sawed on other people's equipment as these were bigger operations.  I charged a fee per Mbf and let them have the headaches of marketing and procurement.  I did do some marketing and product development, but the capital input on that was always on the mill.  Marketing can be done on a percentage basis.  

Are you planning on doing this as a full time job or part time?  Full time will put your production at the ability of the tree service to get you sufficient quality of logs.  You may have a hard time getting enough of a species to make a very good run.  You are going to have to move material into commercial markets in order to keep cash flowing.  Someone is going to have to find those markets.  Have those markets before you put saw to wood.  What happens to your operations when the log supply isn't enough?

Like I tell everyone else, write a business plan.  Put it down on paper and do the math to make sure that things will actually turn a profit.  As a partner or a subcontractor, there are a lot of things to consider.  Take your time before jumping into things.
Never under estimate the power of stupid people in large groups.

Offline terrifictimbersllc

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Re: Partnersí Agreement
« Reply #5 on: November 29, 2018, 07:54:08 AM »
What everyone else said and what Ianab said about details of your sawing business.  And ask yourself whether you really want to be filing tax returns with someone else. 
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Offline SawyerTed

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Re: Partnersí Agreement
« Reply #6 on: November 29, 2018, 08:19:23 AM »
Several months ago I investigated forming a partnership with a gentleman and his son.  They already have an established operation.  The son owns a logging company and a grading company.  The father operates a firewood processing facility.  The logging and grading company supplies the firewood processor with logs.  The great majority of saw logs go to the commercial mills.  Some come to the firewood processor yard.

We discussed the partnership idea and decided to do what Ianab wisely suggests.  We formed a business alliance, I buy the oversized logs that won't make firewood.  The sawmill and lumber is all mine.  Sometimes I pay for logs with lumber, sometimes I custom saw his logs in exchange for logs.   We keep our profits, equipment and expenses separate.  We have an agreed upon way of establishing log prices based on the statewide quarterly rates for saw logs.  We have an agreed upon price for lumber and sawing services.  Rates for logs and lumber are adjusted quarterly unless something like a spike in fuel prices impacts expenses.  He doesn't sell lumber and I don't sell firewood.

I get the advantage of an established log yard and log handling equipment.  I still have flexibility to pull out to do portable jobs.  We've found that a weekly reconciling is best and we both work hard to come close to even.  I keep my "ledger" and he keeps his.

I also have a relationship with a tree service with whom I have agreed to purchase walnut, cherry and some oaks. He stages the logs at his location until he has a load.  I go scale them and make an offer.  He takes the offer or not.  No hard feelings.  I base my offer on the same quarterly report for saw logs.  I couldn't meet the area market demand for lumber relying on tree service logs but I can get a few special logs at a price below market.  That's because he's already gotten his customer to pay the disposal fee for the brush and logs.

Both of these relationships work for us.  Nobody is so tied to another that our business model will suffer seriously if the relationship deteriorates.  We have the advantage of a business network of sorts.
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Offline Texas Ranger

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Re: Partnersí Agreement
« Reply #7 on: November 29, 2018, 09:10:15 AM »
In short, what everyone else said, and no.
The Ranger, home of Texas Forestry

Offline YellowHammer

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Re: Partnersí Agreement
« Reply #8 on: November 29, 2018, 01:38:52 PM »
I've always envisioned a business partnership at some point getting to a situation the same as a lifeguard saving a drowning victim.  When things go bad in the business,  somebody is going to start going under and if the other partner tries to save them, they they will get pulled under and drowned also.  If no help is given then the first partner is going to drown anyways so its lose lose.  I one person does real well, then the other starts getting dragged along for the ride.  

I prefer a business relationship that is much more separate.

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Offline moodnacreek

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Re: Partnersí Agreement
« Reply #9 on: November 29, 2018, 01:45:42 PM »
The thing to do in a tree service yard is rent a piece of it and set up a merchandiser line where you metal detect and trim up the junk they bring home into proper saw logs. This is what needs to be done and it's a lot of work but if you just start sawing you will give up quick. You would need access to all the wood that comes in to weed out the good stuff.  And now who owns what?  The 'inlaws' will say you took all the good stuff and left the junk and didn't pay enough anyhow. Unless you guys are saints, it won't work.

Offline Percy

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Re: Partnersí Agreement
« Reply #10 on: November 29, 2018, 02:09:26 PM »
*yoda voice*. Much wiseness there is here. 🤓
GOLDEN RULE : The guy with the gold, makes the rules.

Offline OffGrid973

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Re: Partnersí Agreement
« Reply #11 on: November 29, 2018, 05:54:01 PM »
This is still America and a handshake means a lot.

If this becomes a full time business to pay the mortgage I agree paperwork but if the person is a friend, be honest, transparent, split the profits 50/50 and then if you feel the work is too cumbersome decide on an hourly rate.

Sometimes the information here is too geared towards huge operations and I want to make sure we donít scare away the up and comers.

Also selling product becomes dicey so figure that piece out legally, insurance, etc to make sure one spark or whoops doesnít shut you down, or the larger operation.
Your Fellow Woodworker,
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Offline SawyerTed

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Re: Partnersí Agreement
« Reply #12 on: November 29, 2018, 08:06:57 PM »
This is still America and a handshake means a lot.

If this becomes a full time business to pay the mortgage I agree paperwork but if the person is a friend, be honest, transparent, split the profits 50/50 and then if you feel the work is too cumbersome decide on an hourly rate.

Sometimes the information here is too geared towards huge operations and I want to make sure we donít scare away the up and comers.

Also selling product becomes dicey so figure that piece out legally, insurance, etc to make sure one spark or whoops doesnít shut you down, or the larger operation.
This is America but it is also a litigious America.  There have been countless people who have lost a lot based on a handshake.
I've put a lot of time and energy into forming my company, I'm going to play by the rules.  I'm not going to risk all I've done and invested based on a handshake deal.  Agreements between two businesses to do business together need to be clean and structured but don't require a legal partnership. 
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Offline Southside logger

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Re: Partnersí Agreement
« Reply #13 on: November 29, 2018, 08:40:34 PM »
The other thing that happens is people divorce, break up, die suddenly, become incapacitated, etc and that is when all of the distant relatives who have family at the firm of "We, Cheat-em, and How" show up looking for their "fair share".  Had a girl friend sue me once when we broke up and her ambulance chasing attorney though my little company was worth a fortune and I was just going to pay dearly.  She was never part of the business at all but he tried to make a claim that she was owed by it - having my effects in order made that whole thing go away, imagine if we had been in a business "partnership".  
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Offline moodnacreek

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Re: Partnersí Agreement
« Reply #14 on: November 29, 2018, 09:13:36 PM »
Partnerships work for poor people that have nothing to fight over. 'In a team one horse always pulls harder than the other'  The old rich that have done it all before [ and can afford to loose] also do better in partnerships.

Offline Ianab

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Re: Partnersí Agreement
« Reply #15 on: November 30, 2018, 01:45:27 AM »
'In a team one horse always pulls harder than the other' 


This is true, but as long as both horses are working and happy , the team can still work. But if one is a complete lazy slug you want to be able to easily unhitch and move to something else.  Hence the informal "business alliance", rather than a formal partnership. You aren't happy, take your ball and go home.  

I've done a proper formal business partnership with an ex girlfriend, to buy a large farm property. We later broke up, but the agreement laid out who owned what share of the main assets etc. She had the significantly larger share in the property, so she refinanced and bought out my share, I walked with slightly more than I had invested.  We are still friends ~20 years later, even though I've since remarried. Heck my mill is out at her current farm, as are my chilli plants, I do part time work for her, and my kids and her dog are best buddies. :D

But the key was that "exit plan" Once we decided it wasn't working, there was an agreement on how to "divorce".  "We, Cheat-em, and How" didn't need to show up. 
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Offline OffGrid973

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Re: Partnersí Agreement
« Reply #16 on: November 30, 2018, 06:54:06 AM »
I guess I am old school as these are valid points.

If I do ever achieve the farm and quit my day job, I will not want anyone to take half. That being said I will not sign papers until married and divorce is not an option, so either she gets it all or we suffer together...not doing that to my kids and at the same time trying to get America back to where handshakes are the most important part of business and life.
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Offline Resonator

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Re: Partnersí Agreement
« Reply #17 on: November 30, 2018, 07:35:40 AM »
"Dewey, Cheetham, and Howe" was the name of the law firm that represented Click and Clack, the Tappet brothers.
"Partnerships are ships that sink." - Dave Ramsey
Under bark there's boards and beams, somewhere in between.
Cuttin' while its green, through a steady sawdust stream.
I'm chasing the sawdust dream.

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Offline Southside logger

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Re: Partnersí Agreement
« Reply #18 on: November 30, 2018, 10:33:52 AM »
Don't forget about the Russian chauffeur - "Pickup Andropoff"   :D
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Offline thinwater

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Re: Partnersí Agreement
« Reply #19 on: December 03, 2018, 09:34:43 PM »
I think that the exit plan is the most important thing that needs to be agreed on. It needs to be clear that if things dont go well for any reason whatsoever, you will be taking your sawmill with you when you leave and no one owes anyone anything. 

If you are splitting the "Profits" in any way with them (verses renting a spot and just paying for the wood) make clear everything that needs to be deducted from the gross amount before splitting. This may be gas, blades, repairs and so on. You may be expected to provide everything to do the cutting since they are giving the land and trees to cut so this may not be an issue. In any case you both need to be on the same page or it is going to fail for sure. 

It is better to have an "uncomfortable" discussion now instead of later to be sure both parties have the same idea of how what will be done, who pays for what and who takes what with them if it does not work out. Once this is clear you can move on with the agreed on plan. 



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