++ Vesuses +- Businesses

[just_sawing]

Running a business for 30 plus years I have had the honor to look at what are the types of businesses. I have come to the conclusion that there are only two types of businesses and that is a +,+ or a +,-.
This means how your business how your business works when the economy goes up of the economy goes down.
A good example of a ++ business is a lawn mowing operation. When the economy goes up the home owner hires a company to mow so the can enjoy life as a family, but when the economy goes down they go to the store and get junior a lawn mower and the lawn company has less business. This does not mean that a lawn care company is a bad business but it does mean the they need to have diversify to counteract downturns.
What got me interested in this is the fact that we own a Sawmill operation and it is an example of a +,- company. When the economy takes off people tend to purchase Lumber from the box stores not taking the time to use sawmill lumber. This come into real play as the economy starts down more people use sawmill lumber. As the economy gets worse even larger contractors also use the Sawmill lumber.
So there are got to be many examples of other businesses that are the same but I wanted to share this.


Now that I have talked about the econimy now I want to break down the stages of a bad economy.
Stage 1: When the economy dips we have an increase in work.
Stage 2: When the economy gets worse we have an increase in tree that the customer brings in from his property to cut.
Stage 3: When the economy is at the bottom customers bring logs to the mill and swap our labor for wood cutting the logs on the half.


In 2014-2015 We saw a down turn in customers do the that they were in Stage 1 and buying from the Box Stores.
In 2008- 2011 we saw loggers quit Sawmill sell out and we were having customers bring some logs on the half. By 2011 over half of the small mills around me had gone out of business.
At this time I am seeing a strong stage 2 with some stage 3 at the mill. The indications are that I will see more stage 3 in the future

[Nebraska]

I see the same in different areas. 

[SawyerTed]

Generally I agree, I can't find flaws in that logic for small sawmills.

BUT for a portable mill in a rural area, it may run a bit differently.   When the economy was up, I had more business than I could get to.   People were building sheds, barns, lean tos etc.  They were renovating and wanting rustic materials for man caves, picnic shelters, she sheds and the like.  

As the economy slowed, my business slowed.  Couple with that the proliferation of portable and small stationary mills "everybody" bought during COVID and there's a glut of cheap rough cut lumber around.  People are selling lumber for what would be a loss for me.  

I'm hoping there's a "wait and see" election year phenomenon going on.  Seems like there's that "wait and see" attitude then people go ahead and "do" no matter what happens.  

[Peter Drouin]

Not far from me, 50 -60 miles away. One guy selling v-grove, shiplap, or plane square lumber by the lift. All kd and plaind. 500 bf 6' to 16' mix for .89 a bf. I know they paid .45 to .50 a bf just for the logs.

Tell me where the $$$ are in that. I get more for half-green lumber.

I buy 20 to 30 loads of logs a year. Not this year. Only 3.
But that's ok. I do have a bunch of logs in the yard. Come Dec 1 I shut down till Apr 1. Let it snow.
I will buy some truckloads this winter, however, If the wrong person enters the Whitehouse. I may not open.

More HOT ROD time.

[Old Greenhorn]

I think you are right Ted, this election year definitely seems to have an effect on peoples spending habits. I have been talking to a lot of long time vendors at various craft shows and they all agree election years can slow things down and this one is one of the worst according to the ones I've spoken with. I sure hope it turns the corner because the sales I had gotten in the previous 3 years just did not come up much this year.

[Ianab]

If your business relies mostly on "discretionary" spending, then a downturn in the economy is going to hit harder than one that's basically essential. 

So a supermarket might see slightly less sales $, because folks cut down on the luxury items, and only buy the basics. But they still have to spend, so the business is still viable, just lower profit. That's survivable. 

I'm sure election cycles have some effect on "consumer confidence", because folks may be uncertain about the future, and put off those discretionary purchases, because "you never know". But the global economy / inflation / fuel prices etc don't 100% revolve around the US economy. Sure it has an effect, because it's the largest single part of the World economy, what happens in the EU and China also matter. Right now things seem to be recovering from the post Covid fallout. Inflation / interest rates have been high, wages not so much, but interest rates / inflation seem to be settling back, at least locally. 

But 3 problems I see with business that fail. 

One is that they are carrying too much debt. If times are tough, there are expenses you can trim, but you can't avoid the loan / overdraft repayments to the bank. Same as for an individual, if you have a high mortgage, it's a priority, or things go bad pretty quick. 

The other is they can't diversify when their market is in a slump. A small sawmill business you have to decide what you can sell (at a profit). That sorta goes with the OP, that when the economy changes, their business model adjusts, and it keeps enough $ coming in to cover point 1 (the bank), and of course the supermarket. 

 Last is reducing the sell price to maintain cash flow. You can't sell something for $9 that cost you $10, and hope to make up the loss with volume. If the cost is $9, and the sell is $10, then selling more should at least make slightly more $. But in the first case, the more you sell, the more $ you lose. Keeps up short term cash flow, but the hole you are digging is getting deeper. 

[Peter Drouin]

That's why I'm in the whate-and-see mode before I spend 1000s in logs. My overhead is minimal. So I can take the winter off.



I went back to add to my post. But, I have to have a reason to do so now. Is that a new thing??

[WV Sawmiller]

Peter,

   If things go far enough south with the election are you ready to convert your hot rod to electric?

[Jeff]

That's why I'm in the whate-and-see mode before I spend 1000s in logs. My overhead is minimal. So I can take the winter off.



I went back to add to my post. But, I have to have a reason to do so now. Is that a new thing??

I dont think its mandatory. Its part of the new software. I ignore it. I dont even know where it goes if you do.

[Magicman]

The economy has very little if any effect on my sawing.  It is very rare for me to saw "bought" logs.  I saw for landowners who need lumber and have the necessary logs on their property.

With the thousands of acres of Beetle Killed SYP trees/logs available this year, I was surprised that I only sawed for three customers that recovered and sawed "beetle trees". 

Customer's philosophy seemed to somewhat reflect mine; If you need lumber, saw it.  If you don't let it stand or rot.  Don't saw lumber that you may not need with money that you may not have.

[longtime lurker]

There is no rule that says your business must be static, in fact the opposite is true; businesses that are dynamic and can adapt to changing conditions are the ones that survive.
Market conditions change all the time... there are market segments that do better in a good economy,  market segments that do better in a tough economy and market segments that are somewhat recession proof. The thing is to know where things are at and where they are going so you can change where you're at and where you're going.

There's also some degree of confidence in your product required and a lot of bean counting and number crunching.... demand for lumber is good in Florida this week what's it cost you to get a semi load a week there? Low margins perhaps... but low margins are better than no margins.

Debt in any business is a double edged sword... sure life is simple without it because you can pick and choose. But having debt is also a powerful driver of innovation and change because you can't afford not to.

[Peter Drouin]

I'm a small outfit and can pay for everything coming in.
With that said I can have $100,000 in logs and lumber in the yard looking at me not selling. 
And I don't lose any sleep.

Small can be a good thing.