business plan

[josh]

Have a question about charging customers.  I have to go to bank with a business plan in order to get funding for sawmill.  I have provided everything to them and it seems that now a days they want everything including the kitchen sink.  I was curious if anyone had a good overview of how to figure out what is a good hourly rate for milling or what are standard market prices for milling certian logs.  Thanks so much for help.  They make it so difficult to try and start a new business.

[beenthere]

josh
Wish you the best in the sawmill business venture.

But reading your previous posts (4), seems the bank has good cause to raise some questions before financing a loan.
Matter of fact, your not having a good idea what your hourly rate for milling will be is a bit of a clue that you haven't given it much thought.
Sorry if that sounds harsh, but this is a good time to face the music and decide if this is a debt that you really want to carry forward.
And your bank for sure should be on the lookout for where their money goes.

[MAI]

Hi Josh,
With very few exceptions, banks that finance mills will require proof of insurance and stipulate that they are listed as the Loss/Payee on the binder.  Also, you always want to make sure you are insuring the mill for the correct Limit of Insurance and not just for the amount financed.  This is very important should you ever experience a partial or total loss.
As a sponsor on the Forum, if we can be of any help please contact us.
Thanks,
DJ   (MAI)

[jdonovan]

I was curious if anyone had a good overview of how to figure out what is a good hourly rate for milling or what are standard market prices for milling certian logs.

If you can't figure out what you need to charge to make enough to pay all the bills its no wonder the banks are asking for a lot of information from you.

Lets start with your local market...
Do you know what custom sawing in your area is priced at?
Even if I tell you what I charge it won't help much, unless we live, work, and target the same geographic area, and markets.

If you decide you need a $250,000 a year salary, and therefore your costs are $0.90/ft, and everyone else in the area charges $0.10. It won't take too long to go out of business.

We are willing to help, but you're going to have to do some of the leg work here....

What is going into your costs of operation? We can work on per-hour rates, or monthly, or per-mile for vehicles, but you need to start getting some figures down and once you've got reasonable costs of operation figured out, then we can calculate what per-hour rate you need to charge.

[Ron Wenrich]

I'm with beenthere on this.  If I'm a banker, I'm looking at what will make you successful.  Equipment is one thing, experience is something else.  I saw one business plan that says to do something you know.  It gives you a better chance for success.

Your business plan should be to fulfill a need in the marketplace.  You have stated you want to be portable.  What's the size of that market?  What's the competition?  What are rates in your area?  That always varies from one area to the next.  Once you find those rates, you'll be able to figure out if you're going to be competitive, and if this is something you really want to pursue. 

Same goes for selling lumber.  Are you going to cut lumber for a certain market?  What is the size and who's your competition?  How are you going to do it better or cheaper?

The bank wants to know how they are going to be repaid.  That means if your mill is sitting idle, you won't have the money to repay them.  They want you to succeed.

An hourly rate would include your base salary plus costs.   You will have fixed costs like mill payments, licenses, rent and insurance.  Putting them into an hourly cost would depend on how many hours you work per month.  If you're not working full time, those hourly costs go up.  Your variable costs would include your base salary, taxes like Social Security, fuel, and wear and tear on your equipment.  Plug those in and see what you get for an hourly rate.

You might want to see what other types of equipment are out there.  Especially used equipment.  More bang for the buck. 

[jdonovan]

Putting them into an hourly cost would depend on how many hours you work per month. 

Also you're not going to be cutting 40h/week 52 weeks a year, so don't use that for your plan =).

Leave time in your plan for break downs, maintenance, travel to/from the job site, and sales/marketing/estimates. Everyone always forget to leave time in their day to be out getting the next paying job.

[GeneWengert-WoodDoc]

Steve Bratkowski of the US Forest Service in St Paul, MN wrote a booklet on business plans for sawmills.

One version is at http://www.fpl.fs.fed.us/documnts/misc/natp0995.pdf but there may be a later version.

[Okrafarmer]

Great resource, Doc Gene! I saved it to my bookmarks to read later. I can use that info right now.

[scsmith42]

Josh, there has been some good advice offered to you thus far.

About thirty plus years ago I was in a similar position to yours, and I questioned the need to develop a business plan, etc. at that time.  That particular business ultimately failed; and although I learned a lot from it, had I taken the time to understand, develop and manage to a realistic business plan most likely the business would have succeeded.

A few years ago a similar question was asked about kiln drying, and I posted some thoughts about costs of doing business that should be factored into pricing.  Here is a link to the thread:

http://www.forestryforum.com/board/index.php/topic,39231.msg567303.html#msg567303.  I would steer you to reply #7 in which I address a number of different factors that impact business.

Even though you are evaluating costs associated with milling and not drying, the fundamentals are the same.   Everybody on this forum knows someone that has opened up sawmill businesses, and a few years later gone out of business - usually because they did not understand the true costs of being in business and they did not plan and price their work accordingly.  One of the sharpest sawmillers that I've ever known of lost his business within the past year.  He had a lot of business but was not generating sufficient revenue to service his debt and be profitable, and ultimately the bank forced him out of business.

Good luck with developing your plan and business.

[Sawdust Lover]

Josh, I dont think anyone is trying to dishearting you but they are all right. You asked the question and you are getting answers from very proffesional people. I started a construction buisness 15 years ago. The reason I got the loan was because I had a good buisness plan. The plan looked great but I wasn't honest with myself and what was on paper was totaly different then reality. The work I thought I had never panned out and the competition was fierce. I ended up loosing everything. Be honest with yourself. Start out as small as you can and then build from there. If you do get a loan and you are keeping a regular job keep your payments to where you can make them off your regular income if the mill should sit for 3 months. Banks are really nice when you walk in there door. But there not so nice when they have to walk in yours. We all want to see you around here for a while and not your equipment on craigslist. Just some words I wished somebody told me when I made out my buisness plan.

[GeneWengert-WoodDoc]

One very important characteristic of sawing and drying businesses is poor cash flow.  That is, you will have monthly bills, including log purchases, electric, salary, utilities, loan payments, but the income to pay these bills will vary greatly from month to month.  Therefore, you need to have some cash to carry you over these slow income periods.  This means that you should not spend cash for equipment, but get a loan.  If you make a good profit, pay off the loan early, but always keep some cash available.  Sawing and drying can be very profitable, but some mills fail because they run out of cash.

[Okrafarmer]

Good advice, Doc Gene, and I would add that one other good approach is to own all your equipment outright, have no loans, AND start with a pile of cash to get you through the tough times. Then have a rule that you don't spend any cash unless you have money coming in. That is essentially what I am planning to do, hopefully in the next few months.

[Leigh Family Farm]

Really wish there was a "like" button for some of these comments...

Great info guys!

[josh]

I thank all of you for the honest feedback and links to great resources. 

[Kansas]

From a perspective of a bank. You have it up you are from N Carolina. I would guess there are a quite a few sawmills back there. Or not. But in either case here is the problem. If there are a lot of mills there, then the banks have seen a number of them fail in the last 5 or 6 years. If there are not, they do not understand the timber and lumber business. If it is the first one, you are going to have to have significant equity and a heck of a good business plan. If it is the second, you may just have to visit a lot of banks before you find one that might have loaned to a sawmill operation like your own, and it worked. I still think back to that guy that owned a  microbrewery and restaurant that got turned down close to 10 times by banks before he found one that had loaned to one, with good results. And all he wanted to do was buy the building he was leasing. Last I seen in the paper, they expanded brewing capabilities by a bunch. If he would have given up after bank number 2 or 3, he would not have got that accomplished. But a lot of good advice here. Preferably get a mill you can grow into, hopefully used. No point in buying a small manual mill if you eventually want it to be your livelihood.  Don't give up your day job. It might have to make the payments. Just make sure it can, because most likely it will have to starting out. And the Doc is right. Cash flow can kill you. Its kept us on knife's edge the last 8 months with new business.

[Meadows Miller]

Gday

First off Welcome if I have not said it already Mate 

Fulltime Sawmilling like any business in these times or any time for that manner is a hard game to get finance for unless you have #1 alot of equity in property or #2 Good Profitable Contracts ie 1 to 5 years and Expirence is key to it on the second one and if I went that way I would just ask for $2 or 3 million and gear rite up 

But I personaly dont like dealing with them as I have seen the fallout when they decide their taking their bat n ball n goin home twice now with my Grandfathers and Parents Business's  over little crap really at the end of the day  Ill say I had one Bank Manager knock me back for the Lucas Mill 5 years ago and I had the ole S/hand 98 mod 8-20 within 6 weeks and the 10-30 18months after that one  same person saw the two of them together at the servo and said where (How) did you get them I replied I told you I can do this with or without you !!! to the same token any drugged up or dead head clown can walk into a bank here with 6 weeks pay slips and get a loan for a $30k car on the spot I decided a long bloody time ago which side of the fence I stood on I have no debt atm and fully intend on keeping it that way as im sitting on about 3million bft pa of production capacity in the equipment i have now  and Cashflow is the key to growth of my business now as with any business really  its not the easiest row to hoe but atleast I know what I have is mine an im not going to have the rug pulled out from under me when things get alittle tough

I think you know which way I lean when I am going to give advice to you but start small and grow from there as your buisness allows   

I know one mill here that owes 2million + and only produces about 16 to 20000bft per day I honestly dont know how they do it but they are committed now and have to keep going because they will not get the money they put into it back out of the mill if they sold out no one will    (edit) I do know how the are doing it their other buisnesses prop the mill up 

Regards Chris

[OlJarhead]

Great feedback from all -- thanks from someone who didn't ask but is grateful for the info.

I've been considering this myself though admittedly because I'm out of work (again) and getting tired of working for others.  I'm doubtful, however, that I'll be taking the plunge because my LT10 is too small (I think) and too hard to move around so I'd have to upgrade to an LT15 at least or LT28 perhaps just to get something truly portable and with the ability produce enough that it might pay for itself and my wages.

[Meadows Miller]

Jarhead sory to hear your out of work might be time to have a crack though if your tired of working for others though    I had a Jonsered band mill bout the same size as the lt10 but it was run of a 2095 Jonsered and welded it to two 4x2 heavy wall tube with an 18' cut  and did a dang good bit of protable milling with it when I was in my teens cutting construction lumber I could do 850 to 1200bft a day they where Long days though  but your still making money Just think 3000bft is still $900 for a weeks sawing at $300per thousand minus gas and saw maint but they are minimal expences just whack an add in the loacal rag even build rustic furniture garden shed structures and the like Its just my way of thinkin Mate 

Regards Chris

[OlJarhead]

Thanks for the reply Chris, it's certainly something I've thought of trying and while there isn't much local to mill (not many trees) there is where our property is and as my neighbor is a metal fab guy perhaps it's something I ought to try.

Maybe if the LT10 can earn me a paycheck then going bigger would be less of a scary prospect.

Thanks, I'll talk to my neighbor.

[Okrafarmer]

I would suggest starting to make whatever money you can with your LT-10 as you build up your business, and then when you're starting to have a little income, upgrade to something more capable. Don't discount used mills, either. You may be able to sell your 10 and have a good chunk of what you need to buy a used mill with greater capabilities. The great news is, since you started on a 10, you have learned all the hassles of manual milling, and with any bits of automation you get on a new mill, you will be better able to exploit the new advantages, because you appreciate them more than someone who bought a nice automated mill from the very beginning.

The custom job I did today, I could have done on an LT-10 just about as easily as I did on the LT-40 HD. Especially since the customer brought the logs sticks to me.