Upgrading to a Larger Production

[just_sawing]

I have had a meeting with a firm that is wanting to invest in a Medium Production Sawmill operation. (2 Million Feet dimensional)
 Does anyone here have experience in this. My LT70 just isn't going to come near the mark. They are serious about doing this in the Middle TN area. 

[Southside]

Can't help you there but just remember the golden rule.  He who has the gold, makes the rules. 

[Magicman]

Building your business depending upon another business is risky business. 

I bought my sawmill from a person that went belly up when the other business went belly up.

[longtime lurker]

It's a bad number: Too big to be small and too small to get any economy of scale.

A lot depends on the who. Do they have industry experience or control sufficient log supply to feed a mill for 20 years (all pluses) or are they just saying "lumber prices are up, lets get in on it"? Lot of difference there between people in it for the long haul against people who are seeing a boom cycle and are going to bail out when it all goes bust.

A lot depends on the you. Prepared to sell your soul to own a real sawmill... on call 24/7, risking your marriage, all that kinda thing? Got the people skills to manage the staff and juggle all the competing interests in running a production operation? Got the mill skills to walk in and take on any job in the whole operation from broom pushing to overhauling a hydraulic pump to sitting in the cab making your headsaw sing or running the filing room.... you can't do it all and you can't do any two jobs at once but you better know how to do everything, even if only enough to know when the guy your paying to do a job ain't doing it right?

Equipment is easy - plenty good second hand production gear suit a smaller operation out there.
Integrating all the toys is harder - plenty gear that can make lumber cheaply fails because the sawline isnt efficient.
Staffing is harder still: pay peanuts and you'll get monkeys and skilled hardworking staff in this industry are smart enough to find better paying jobs elsewhere if you don't look after them.

Look there's this idea that business growth is linear, that you'll grow slowly but surely building it a bit more each year until you get to where you want to go. But that's not how it really works. It can work like that, you grow a little, grow a little, consolidate a while... but mostly growing a business is about the size of your cojones and screwing up your courage and taking a leap when the right opportunity comes along. You made a leap to get an LT70 right? It's all the same thing.
And there's also something about understanding that... 2 million a year isn't really a bad number. Just a bad number for a big business and a scary one for a little guy. It's just what you're doing now but faster, with a few more guys and dollar signs attached.

[mike_belben]

Sounds like there's a Hurdle in your future. 

;)  

[YellowHammer]

Seems like a good thing if they invest with money and staffing resources, so you can be free and clear if they pull up stakes and leave a couple years from now.  You won't have debt and will own the equipment.

From the people I know, employees absenteeism is the critical factor in keeping a sawmill operating these days.  For example, the owner of a mill down the road says he has to call in double the workforce he needs to get half of them to show up, on a daily basis.

Another owner I talked to last week said that when he went home for the day, he had 6 employees, and when he showed up the next morning, he had 1.  They just walked off the job and that was that.    

So I'd be looking to get the partners to invest is as much automated equipment as possible to account for that, and see if they can also handle the staffing.  Since the production numbers will be dependent of that, they can't penalize you if their people don't show up.  

[mike_belben]

I have only partnered one time, and was very blessed with a great partner.  i was leery of it initially, as the partner was nearly a stranger..   I thought he was full of it when he suggested wanting in, and gave him a pith off sort of answer that boiled down to 'bring me this much amount of this thing that i constantly struggle to get, and thats your buy in.  I will stop all retail sales and my full output will go direct to only you at xyz amount wholesale and you will be the sole retailer.'

    I figured that got rid of him until he showed up with a crate full of freshly imported components and we did well together for 8 years until i sold to him and he is maybe 7 or 8 more years into it with good margins. 


It would have probably not worked if he wanted some sort of management role.  I never heard from him except when stock was running low and then just sent more at the same prices we agreed on at day one.  

It was wonderful and i hope your partnership can go that smoothly.   


Like was said.. Put a steep buy in on the terms.. A big upfront leap for the partner.  They invest 100% of their deal upfront so that if they walk away short of fulfilling their end it is only them forfeiting their money.  They arent there slinging boards then they should not have easy returns.  If youre doing the sweating they are doing the waiting to break even and if they bail you are left with new equipment free and clear. 

Dont sell your current equipment lest the repo man come knocking for iron that you feed your family with and dont have title to. 

[Magicman]

I was "offered" a deal this past year where I would set my sawmill up sawing cants at a commercial sawmill.  They would feed me logs and remove the cants.  The location is only ~15 miles from the Cabin and I would easily handle a few hundred Mbf per year.  Nope, no deal.  

I am content with my ball (and my future) being in my court.

[WV Sawmiller]

   The closest I have come to a partnership is a customer who told me he had excess trees he'd like to sell and since then I have encountered a couple of customers wanting lumber. The first guy has the logs, equipment to cut and move them, and the labor and I provide the mill and sawing. I get the cut list from my new customer, landowner cuts the logs and brings to a landing, I bring the mill and he and his helper help me complete the new order. He loads it on the customers trailer. I pay him for the lumber and sell it to the new customer. If we run short on logs to finish the order he runs down and cuts another tree. Neither of us had to go out of pocket to provide anything new but we both increase the use of our existing equipment. So far it is working great. 

   I'm with Robert - I'd want the new guy to get off his wallet big time at the start and get some serious skin in the game and not just leave me with a promise "I will buy this much product from you for this much money" because he could back out any time and leave me hanging. Make it hard or painful for him to back out and he won't.

[Southside]

Have a frank conversation with @4x4American 

[longtime lurker]

I think that... any business is dependant on other businesses most of the time.

I'm making a jump now from around 500 MBF to around 3 MMBF. It's a big jump, also not a big jump. Few more staff, few more toys, some infrastructure investment, some stress and headaches, some payday at the end of it.

Way I am doing it I have no partners, just a contract to fulfil. But that contract has a value and based on that value I can finance what I need to uphold my end of the deal. I control my own land and buildings and equipment and get paid to saw logs. The other party owns the log resource, takes care of harvesting, and retains ownership of the lumber. By the time the contract expires I will own my equipment and be a couple years closer to paying out the mortgage.

From their point of view they've got a guy who comes with all the equipment required to enable them to get established as a player in the lumber market rather than just being a seller of logs. And the guy is me.... and I'm probably the best benchman on a bad log in the whole country, silk purses from sows ears is what I've built a business up from nothing on. They go from selling logs to selling lumber and along the way they'll build their own sawmill in a more suitable geographic location which will drop their cost base.... but that brand spanking new 20MMBF mill will have established market access. They don't make a profit out of what I'm doing for them - but they lose in a way that makes sense because the value of that established market is worth more than the few bucks they go backwards freighting logs to me along the way. They get to pick my brains and I know a real lot about this business, far more than a guy who runs a 500MBF operation should. They get me to help them train guys up for their own mill. They've got a long term plan and enough of a revenue stream to bring it to fruition.

I get guaranteed work that enables me to expand, and by the end of it I'll be sitting right about where I want to sit capacity wise. I'm not throwing my existing work away... but I'm not chasing any more either right now though if I get the overcapacity I expect - well my associates have more logs than anyone so they'll happily chew it up but I can direct it to my own work as well. And my associates customer is extremely impressed with the quality of the lumber I'm producing for them... they're a national player and will take whatever I can cut and that kind of thing is handy going forward too.

When this finishes I'll be in a far more secure place than I am now. See, I used to be a one man operation but that guy got hurt and was unable to work for a year... so things got lean. Can't do it all myself - lesson learnt.
I learnt from it and decided I had to grow, borrowed for more capacity, started dealing with lumber yards but yanno.... my increased capacity wasn't enough and meant I was only big enough to carry one lumber yard plus my local market: When the lumber yard got in trouble I was left hanging until I found a new lumber yard volume customer... so things got lean. Too many eggs in one basket - lesson learnt.

End goal for me here is security... give me 3 MMBF capacity and I can carry a couple regional lumber yards plus my local market, or maybe my local market and be a specialty provider to a serious national player. Either way I reduce my risk to  any individual somebody else's failure. My fixed overhead - mortgage, insurance etc - will drop as a percentage of operating cost. I will become somewhat replaceable in my own business, which means I get a life back after 10 years of beating myself to death cutting wood 7 days a week.

I guess the thing I'm saying is you have an opportunity... maybe its a good one, maybe it's a bad one. You're the only person who can tell that, and a lot of it is making sure the opportunity works for you, and fits your long term vision for your business, and not just their business.

Lot of thinking to be done for sure.

[WV Sawmiller]

Lurker,

   I'm happy for you and hope it all works out well and as expected for you. 

   I'm not sure I understand some points though. It sounds like you have a timber company with logs and equipment to harvest and transport them to you and you are expanding an existing operation to accommodate their shift from a logging operation to a lumber operation. What I don't understand is the comment that at the end of the project they have a 20 MMBF mill in a location that is convenient for them and an established lumber production operation. Are they building another mill or are you building one, training the operators and handing it off to them at the contract period? It sounds like at the end you still have your operation which has expanded from your current capacity and can continue as before with more capacity and clients?

   One other question - you mentioned getting incapacitated and off work for a year. What happens if you get sick or hurt during this contract period? Are you on the hook for some big expenses or do/will you have someone as a back up to keep the operation going? 

   Stay safe, good luck and keep us posted.

[Ianab]

The thing I would be wary of right now is what numbers they are basing their budget on. 

If it's Current lumber prices, that's not a very good plan. There is a "blip" in the market now, and it's going to correct some time on the near future. Do the numbers still make sense using last years numbers?

Exit strategy - What's your position if things don't work out? Will you still have equipment and a customer base to fall back on?

I'm not saying don't do it, as it's a potential opportunity. Just look at all the options. They seem to need a reliable / affordable source of product and are looking for ways to secure that. What options can you come up with that can solve their problem without potentially leaving you hanging in the breeze?

[YellowHammer]

I've got these Yellowhammerism sayings that I like to use to simplify my personal thought processes (I'm a pretty simple person) and the ones I've used in the past for these type of critical decisions and situations kind of fits this topic.  Unfortunately, they are not true Yellowhammerisms because I didn't think them up, but I use them anyway.  

I've never yet been in a high reward, high stakes opportunity, where when I decided to do it, to jump in with both feet (there is never success if jumping in with only one foot because you are guaranteed to trip and break an ankle), my wife and I looked at each other and said "What in the *ell did we just do?"  To us that's a signal of "buckle up, grab the steering wheel and hold on because it's going to be quite a ride."

Of course, the second not quite Yellowhammerism I use when taking a risk is borrowed from the start of fight announcement in boxing, just before the first round bell. It's the classic, "Touch gloves, defend yourself at all times, and come out fighting."

If you believe you can make it work, do it.  But do the research. Ask all the questions.  Push them hard, and see what kind of partner they will really be.  

[Southside]

I can see a scenario where a 70 could pull this off - as a headsaw with a 5 or 6 head resaw behind it and  likely two edgers.  Not talking optimized here, good old fashioned, thought process.  The challenge will be labor, good labor that can think, make a decision, make something happen, and actually show up to work.  They don't exist any longer, so optimize and automate or go home would be my thought.  

[longtime lurker]

Lurker,

  I'm happy for you and hope it all works out well and as expected for you.

  I'm not sure I understand some points though. It sounds like you have a timber company with logs and equipment to harvest and transport them to you and you are expanding an existing operation to accommodate their shift from a logging operation to a lumber operation. What I don't understand is the comment that at the end of the project they have a 20 MMBF mill in a location that is convenient for them and an established lumber production operation. Are they building another mill or are you building one, training the operators and handing it off to them at the contract period? It sounds like at the end you still have your operation which has expanded from your current capacity and can continue as before with more capacity and clients?

  One other question - you mentioned getting incapacitated and off work for a year. What happens if you get sick or hurt during this contract period? Are you on the hook for some big expenses or do/will you have someone as a back up to keep the operation going?

  Stay safe, good luck and keep us posted.

Hi Howard. Not to hijack OP's thread but yeah... they will build their own mill closer to the resource but due to location that's not going to happen overnight. Meanwhile I expand mine to saw some of their logs so they have an established sales base to grow from and the option is there for them to rotate their future staff through to give them some training. Once their own mill is up and running and I'm off contract (my contract doesnt necessarily end when they turn their mill on) I'll be sitting right about where I want to sit capacity wise, which is small to medium but very efficient and flexible with regard to resource. My biggest problem for about the last 5 years is lack of capacity so... even if it goes sour down the road I might hurt a little in the short term but finding work for a sawmill isn't a problem for me.
I got hurt and yah...  it was a financial disaster. If the same thing happened today it would be super inconvenient but not necessarily disastrous.... it's currently a three man crew counting me and I'm looking for 4 and thinking about 5. This mill can produce tomorrow if I'm on deck or not - I was looking for a plant operator (loader/forklift/break logs up with a chainsaw/other useful things) to keep the saw fed for me and came up with a sawyer instead. Getting off the saw has been good overall because now the saw doesnt stop while I manage the sawmill, though I've become a weekend sawyer to keep myself sane. :D Figure at 50 I need to think about the end game... and along the way I decided that instead of scale it back or sell out I could instead be a sawmill owner and still play with it when I wanted, instead of a sawmill operator. I'm not replaceable here yet, but in another decade I'd like to be.

[Bruno of NH]

My 2 cents which isn't much - 1 cent.
All the production mills in NH are getting bought up by one company. 
Because the old owners see the writing on the wall.
The perfect size operation for making money in NH now is a small 3 person show.
With good equipment that one can afford to buy .
You can set your own price.
One of the big company's mill is my next door neighbor. 
They can't get help even in slow times and keep them.

[longtime lurker]

What do they pay? I know that dollar value relative to coat of living varies widely so... good sawyer against say a plumber or boilermaker or teachers wage, how does that look?

[Ed_K]

 I get a flyer once and sometimes twice a week from an auction co. that are auctioning off sawmills and a lot the them are in the south. Tenn. an Ky. have a lot of the auctions being advertised.

[Bruno of NH]

Kennabec pays $14 to $18 per hour with benefits. 
A first year carpenter in my area get $20 to $22 with benefits for the work on Lake Sunapee.

[Percy]

I have had a meeting with a firm that is wanting to invest in a Medium Production Sawmill operation. (2 Million Feet dimensional)
Does anyone here have experience in this. My LT70 just isn't going to come near the mark. They are serious about doing this in the Middle TN area.

Back in 2003, I was part of a similar situation you are describing. I had a new LT70 at the time and we(5 other small sawmills) formed a group to meet the Western red Cedar demands of a Company(broker). It worked well for a few years(3-4 MBF per year) but it was like herding cats...Some were trying for a larger share and others were packaging offgrade in the center of their lifts....It was all easily traced back to the offending sawmill...but being attached to the organization became a liabilty reputaionwise and soon the Co-op fell apart....You could try a scenario similar to this and not have to invest in a bunch of equipment as the organization will  more than likely eventually fall apart..and you can go back to what you are doing now...

[Andries]

Back in 2014, I met a custom sawyer that has his act together.


 
It appeared to me that he'd found the sweet spot between too small and too big.

[customsawyer]

Andries I resemble that remark but I am still trying to get my act together.
2 million ft a year with a LT70 can be done. I've done it for over 15 years. It just isn't easy. Keep in mind that things have changed now. You had better have most any part you might need in inventory. There is no order today and get it the next day right now. A part might even be on back order for weeks. When doing the 2 million ft. a year all I'm doing there is the sawing. When you have to stack, dry, and finish it will feel more like 6 million ft a year.

[Andries]

. . . All the production mills in NH are getting bought up by one company. . . .  
 . . .  The perfect size operation for making money in NH now is a small 3 person show.

@Customsawyer I was thinking of you when Bruno posted the above.
You've got an operation going in Hazelhurst.
You've also got the Rentz biz going.
Yep, I could understand why you're feeling a mite tuckered - you're doing the work of two men.

[Bruno of NH]

I wouldn't want to be a logger in NH.
Kennabec owns a lot of mills in Maine as well.
If you don't like the scale your out of luck unless guys like Peter and I are buying.
I pay more that the Canadians to get the red pine and spruce I buy.
I'm at the point now I'm buying  log truck loads like Peter. Sawing is the easy part , I need to do something with the waste slabs.
We have a burn ban.
I'm running out of room.