What Would You Do?

Bobus2003 · November 25, 2011, 11:03:23 PM

I'm hoping I can make this work.. I'm gonna put some effort into it thats for sure

stavebuyer · November 26, 2011, 05:17:49 AM

A lot of good advice given. I would add that "adequate" working capital or lack of it tends to tip the scales for many. Cash to work with will make/save more money than any equipment you can buy.

Warren · November 26, 2011, 06:57:11 AM

Bobus,

Much good advice offered above. I will only add two snippets. First, do not put anything up for collateral that you are not willing to loose (hard lesson). Second, ask your boss "What is he going to do in retirement ?" A friend of mine worked in the excavating business for a guy for 20 years. His boss developed cancer. Thought he was going to die. His boss offered him the same deal. My friend took the plunge and bought a significant portion of the equipment and went for it. Six months later, the boss recovered from the bout with cancer and went back into business competing head to head with my friend for the same business.

Fortunately, my friend had done a good job of building and cultivating the relationships with the builders. He weathered the storm. As someone said above, you need to understand "Why is your boss looking to get out NOW ?"

Warren

Bobus2003 · December 03, 2011, 11:42:12 AM

Well I'm trying my best to get the financing to buy him out. Thats kinda the difficult part at the moment. Decided to try to borrow about $20K more than what he offerd it too me for, so that I have money to operate off. (Payroll, Break downs, Fuel, ect.) So I'm hoping by the new year something will have happened.

My boss Is going to run his Farm, and a Fleet of OTR trucks in the Oil Patch when he gets rid of the logging company. So no worries of competition there

Ron Scott · December 03, 2011, 11:32:13 PM

Much good advice here. One especially from WDH, "groom relationships" especially with the forest landowners and the mills.

John Woodworth · December 04, 2011, 03:02:02 AM

Why does your boss want out? thats lots of machinery meaning lots of loads every day to make payments.

Ken · December 04, 2011, 07:59:59 AM

There has been a ton of good advice already given but I would like to add my 2 cents worth. You mentioned borrowing additional working capital of around $20K. Will that be enough to cover things until you get paid from the mills you sell to. My experience is that a Line of Credit equivalent to 1-2 months production is quite necessary unless you already have some monies to work with. If you are short on cash and start to have your suppliers charging you interest on overdue payments it can really add up. Lack of cash flow has killed many businesses.

On the positive side. According to your profile you are young and probably have lots of ambition. If you thorougly enjoy cutting wood give it a try if you can arrange reasonable financing. To those of us that do have the "logging bug" there is nothing else we want to do for some strange reason.

Cheers
Ken

terry f · December 07, 2011, 12:13:41 AM

Really good advice on here. Are you going to continue to work or are you going to have to replace yourself? Will you have the same employees he has now and will they step up and help you make this work. The only advice I can give you is don't miss a payday, you have to pay yourself last. Like Ken said you're young and its alot easier to bounce back now if it doesn't work out than it will be in 20 years. Your boss saw something in you so I say take it and run with it. Good Luck

Bobus2003 · December 07, 2011, 09:05:07 PM

I'll Keep Working, Just have to pull Double Duty running Timbco and Delimber, Prolly have to Replace the Other guy.. He's a Bit hard on Equipment, and doesn't like to Do Preventative maintenance (Greasing, Pressure washing, Oil Changes)

crewzer · December 20, 2011, 08:04:38 PM

How well do you know the gear? It seems a bit old to me. Worn out gear can be a killer. As an owner/operator, while you are repairing, you are not operating. Production is key. just a thought. Good luck.

inthewoods · December 20, 2011, 09:19:44 PM

If it sounds appealing to you, I'd just be looking at the numbers. What the contracts are worth vs. investment vs. reality. If the the numbers look good & so does your plan, it probably will to a bank or investor also.
A handfull of years ago I bought a 60' HighRanger utility truck & a bunch of seasonal electrical contracts. We were able to afford buying the business out of pocket, so it sounded great to me... Kept a couple guys busy on it so it didn't require much of my time. Although it took at least a year to fully find out what all the contracts were, or weren't... & that they were kind of a dead end. I owned the truck for several years & sold it while I figured I still could; but at least that time I made back my investment a few times.
What seems to be the key for me is diversity. Logging is great because I own equipment, seem to have work available, & own loggable properties. But, I also own a construction company and have been a licensed builder for about a decade.
Look good at the contracts & all of your incurred overhead.
have a good 1
Andy

CX3 · December 20, 2011, 09:36:56 PM

Get on your prayer bones for a few nights about it. If it still sets well on your heart thank God for the opportunity and go all in. Never come home without a sore back and never go to work without thanking Jesus

Side loader · December 20, 2011, 09:55:13 PM

An old man once told me, whenever you're faced with a business decision no matter what it may be asked yourself these 2 questions.
#1. What's the worst thing that can happen?

#2. And can I live with it?

I know it sounds too simple but it is mighty good criteria. And has been mentioned pray about it.

Bobus2003 · December 20, 2011, 11:26:32 PM

As of right now its not gonna happen.. The one bank I talked too wants almost half down, the other won't have an answer till next year..

barbender · December 20, 2011, 11:41:27 PM

I'd be leary of the older iron if the boss is tough on equipment.

CuddleBugFirewood · December 21, 2011, 01:31:03 PM

Quote from: Bobus2003 on December 20, 2011, 11:26:32 PM
As of right now its not gonna happen.. The one bank I talked too wants almost half down, the other won't have an answer till next year..

End of year is usually ver busy for banks, and many banks have lots of bad commercial loans on the books. Not the best time to apply for a commercial loan.

banks are very lery of new business. Especially logging. My day job is a bank lending officer for a small bank, my side job is logging and firewood producer. You must have impeccable credit and a good amount down in many cases, I don't know any bank that would loan 20k over what you are buying the business for. To high of risk. The way to look at this is the bank is your business partner, if you go belly up, they lose all the money, and you have nothing invested (dollar wise). Also, experence has show that tools and equipment can "disappear" in the woods, and in general what "banker" wants to mess with selling a beat up logging truck or skidder, those are speciality items for many banks.

You can get creative with the down payment, ie do you have other assets to put up as collateral, equity in your truck or house. But realize what you are doing. I would also recommend you get your bosses tax returns from him if you haven't already, and review those on the logging business, this will also help at the bank if you can show he is making a profit. But you are still a new business, and something like 80% of new business fail in the first 5 years. I would also talk to his accountant if you have questions on his tax return. I know this sounds personal, but I did this with a gentleman before I started banking. I was looking at buying a landscaping company. If he doesn't show it to you then chances are it has not been good. The average net margin in logging is something like 3%, which is very thin. You only keep 3 cents for every $1 you spend. Not much room to mess up.

At our bank we like to start small and build up with a customer as we learn his management ability. I would also recommend going to a community bank, and try several until you find a loan officer willing to work with you. You may need to work up a contract to have it owner financed until you can get the financing arragged, or buy one piece of equipment at a time through the bank.

As was said earlier, working capital is critical as well.

To recap

1. Review tax return and profit / loss statement, possibly show bank.
2. Consider owner financing (my dad sold his business this way)
3. Consider financing just one piece of equipment through the bank as your down payment on the owner financing. This would build your credit with the bank as well, pay this off then try to do the whole thing. It would be easier for them to loan a smaller amount to try you out if you do not already have a relationship with them.

Good luck, and sorry about the rambling...I hope it helps.

CuddleBugFirewood · December 21, 2011, 01:46:09 PM

If you do buy it, you will also need to check with his bank and make sure they release the liens on the equipment. I would recommend making the check payable to him and the bank he has the equipment financed with.

you need to be careful, because when banks do commercial or ag loans they generally file a "blanket lien" which means "all equipment, tools, accts rec, inventory, etc.. etc." is collateral. So even though he does not make payments on the "skidder", it may well be collateral on an operating line of credit.

As a banker, I wonder if he is not in financial trouble and needs to liquidate some assets if he is selling it at such a good price. If that is the case you could probably get a better deal than what he offered.

Just food for thought.

bill m · December 21, 2011, 03:52:59 PM

I am amazed at the number of responses you got saying to go for it. I guess it's real easy to spend someone else money. Be aware that with that amount of equipment you most likely will not be running any of it as much as you may want to. You will have employees to do that and you will become a boss.
Don't ask me how I know ;D