Is my dream realistic or not?

[Quebecker]

I am very impressed with the content on this forum.  I am now happy to make my first post.  It is rather long, but I need to give some details to get a good reply.  I hope this forum can help me go in the right direction.  So here is my letter:

   Is my Dream Realistic or Not

Since I was a young boy, I haven’t really been interested in the family farm.  Sure, I had a few cattle myself, then finally the whole herd, which with plunging beef prices at the time, I had to sell.  I have done the haying, feeding, ploughing, seeding, cutting wood, hauling it out of the woods and cutting and piling, fencing, calving, planning, bill paying, everything involved with running a hobby farm.
   
I tried a couple of times to stay on the farm, but the economy and subsidies in my province disappeared, and I had to go off farm to support myself.  Then the love of my life and I moved in together, started a family, and purchased our home in town.  We were normal.  We had the debt load of credit cards, school loans, cars, house, and life in general.
   
We decided about 5 years ago to get our financial house in order, and are close to paying off all our debts except for our house.  We can easily afford our house payment every month, and we bought a home that was very reasonable.  Our annual income is just short of $50 000 a year, but we live in an area where our cost of living is very low.  We figure we can live pretty well on $25 000-$30 000 a year, so we have a little bit of wiggle room for our retirement and some other investments.
   
We have been lowering our living expenses by controlling our food, our driving, and our heating. (We live in Quebec, Canada, so it can get pretty cold here).  When we can, we produce whatever we can to keep costs down.  We have sacrificed so much recently, saying no to family for visits, not going on vacation, sleeping on our old mattress that needs to be replaced for a year.  And now, our off farm jobs are starting to wear on us, me in particular.  I am a fork lift operator, where I load and unload train wagons full of rolls of paper.  I am in my late 30s, and I’m very ready for a mid-life crisis.  But I want to plan my crisis so we can come out ahead.
   
We have always had the entrepreneurial spirit and have started a few home based businesses before, with varying levels of success.  We now have one where we sell freeze dried food, and that business is growing slowly but steadily.
   
So when I informed my lovely wife that I wanted to start selling firewood, she was fully supportive, and wanted to know more information.  I’m a nerd so I automatically go straight to excel to figure out if something is financial worthwhile or not.  I continuously told her that we have to take advantage of our situational circumstances to beat out our competitors.
   
I listed our advantages, a family farm that is basically wide open to me to use for very little expense at the moment.  So, a landing we’d have no problem.  A place to receive 53” trailers of logs to unload without any difficulties.  We also have 90-100 acres of wood land to harvest firewood from.  A father with many years of experience cutting wood safely and efficiently with the equipment he had.  Like tractors, trailers, axes, chains, and the ability to repair anything on his own because by trade he was a millwright.
   
Dad and I even bought sawmill about 8 years back, and have slowly been selling lumber off the farm, to help pay the taxes on the property.  So, we know we can work together.  Although with his age, he’d be there more for teaching than actual physical labour.  I am healthy and strong, and ambitious, and a family’s needs behind me making sure I get out there every day.
   
We are well known in our community, and if we started selling firewood on a small scale, we’d have clients who trust us already, and know we’d deliver on what we say we will.
   
So I am looking for a push from your folks.  Here is my plan:
Take advantage of the situational circumstances I have listed above.  The equipment I’ll need to start purchasing is a small firewood processor, ($6000), a delivery method, ($15 0000), and a clamp trailer to use on the landing and in the woods to make our operation efficient, ($15 000).  Those purchases would be made in full in cash, so no interest payments.  I would make these purchases slowly as demand increases.  My first year goals make sure I can produce all my firewood and my father’s firewood for our own forest, which we are doing now, but I want to make sure my production line can do it.  Year 2 would be to cut my own wood from our land, but add 2 or 3 53’ trailers of logs and deliver them in town.  Secure a few annual firewood contracts, and slowly add more and more each year.  I am realistic in expectations, and my plan is slow and steady.
   
So, can I do this, or am I crazy?

[Ron Wenrich]

What's your end goal?  Are you looking at doing firewood full time or is this a part time gig?  If you're going to stay small, you will be competing with everyone who sells firewood as a hobby or sideline.  They do it for beer money and that keeps the prices they sell it for at a reduced price.  Your area may be different.

They just ran a local story about how firewood is getting hard to find.  They based it on a story out of New Hampshire, and the cause was due to the influx of wood burners.  In my area, natural gas has kept the price for firewood low.  Guys are charging $250/cd and would rather not even fool with it at that price, due to the labor inputs.  They are generally tree trimmers, and they need to get rid of the wood.  Cutting into firewood is more profitable than taking to the dump.

Fiber cost is not a driving factor in firewood.  You can get it cheaper than sawlogs.  Figure out if you can produce a load of logs cheaper than buying them in.  You need to put in all the inputs such as labor, insurance, equipment, etc.  You may find that it isn't cost effective to produce your own.  When you're cutting logs, you won't be producing any finished product.

Another factor you need is that firewood is a seasonal item.  It also has to be seasoned at least a year, in most cases.  That means you'll have a lot of money tied up in a product that isn't producing income.  You'll need the financial reserves to hold that, as you'll have the labor costs already in it.  In some cases, you'll be able to move wood at a lower price by selling it green.  That improves cash flow, but there will be less.  You need to factor in your carrying costs.

Where I worked, they had a small time production method.  They had a large wood splitter to cut down on the large chunks they had from trimming logs for veneer.  That was too labor intensive to make money.  Then, they went to a small wood processor.  Same results, and they had about 1,000 cds on hand that were cut and split.  They sold by the trailerload and didn't do deliveries.  Eventually they went to a large scale processor.  That produced about 2 cds/hr.  They were also loggers, so they had access to polewood.  Truckers would run the processor when they had nothing else to do.  Labor costs went down with the increase in production.  They moved the wood green and trucked a lot to metropolitan areas.  Cash flow was good.

It depends on the scale you want to go.  We found that delivering firewood didn't really pay us.  We tried that route, but you were tying up labor and equipment.  It was much cheaper to deliver 10 cds of green vs 10 deliveries of 1 cd of dry.  But, you need the markets to do that.  Find your niche and address that.  Ours was volume, yours may be the local market.  But, you need to find the best method that minimizes your largest cost - labor.

[WV Sawmiller]

Q,

   Good luck. Good info from Ron. Check out the local market and selling prices and address the delivery issue.

   Hope it all works out for you.

[Roxie]

And welcome to the forum!   

[Magicman]

I admire your Spirit, Quebecker, and Welcome to the Forestry Forum.   

[millwright]

Welcome, I think you have a good plan, but you might have trouble finding a processor for 6000

[Chuck White]

Welcome to the Forestry Forum, Quebecker.

[Brucer]

Welcome.

I took the "one step at a time" approach when I started my sawmilling business and it paid off. I was never so heavily invested that I'd be seriously out of pocket if the business failed.

There's a guy in this area that tried making a living selling firewood. He cuts, splits, and delivers in the fall and winter. Then in the spring he cuts, splits, and bundles campfire wood. He sells 1 cubic foot bundles for $4.50 to local campgrounds, service stations, etc. He has never been particularly successful (although he will tell you otherwise). The problem is not with the business idea -- it's with the way he does business.

I'm sure with a good helper he could have made a decent income out of this. He did have a really good helper (once), but he didn't pay her well, didn't listen to her advice, and didn't give her dependable working hours. She eventually got fed up and went to work for someone else who gave her the respect (and pay) she deserved. Best worker I ever had .

I'm not suggesting you start off by hiring someone right away, but it's worth keeping the thought in the back of your mind. If you the demand is there and the wood supply is there, you may soon find yourself close to the limit of what you can do by yourself. That's when a good employee can make you a good deal more income.

[starmac]

We have several seemingly successful firewood companies here, most are not a one man show.
It seems the ones that does best are the ones who buy their on log sales and log it themselves, these guys will deliver it in stovewood length, 12 footers 16 footere or log length.
One fairly good sized one does not have his own log sale, nor does he log himself, but buys tree length logs. He has been in business several years and has not ammassed much equipment other than delivery trucks. His guys cuts right out of the decks the self load log trucks stack up, split on two regular skidders, but does have conveyor belts loading the trucks off the splitters.
Even our local sawmill has a huge firewood business.
It seems like they have the pie divided in too many pieces, but most seem to be doing pretty good financially, except maybe for the one that doesn't do any of his own logging. He moves a lot of wood, but I know pay is very slow to loggers and truckers, at times extremely slow.

[Quebecker]

My goal is to have the wood lot produce 25% of my income for me.  That being firewood and lumber.  And after reading most of this forum, I have concluded that taking advantage of your situation, and pushing your advantages, you can out do the competition, or at least make yourself profitable.

One of the big things I will have going for me I think is that my living expenses are currently low because of our plan to get out of debt.  And by soon having the disposable income to make the investments into this project, it will be a huge advantage to run this business without any debt.  I understand that there are running and maintenance expenses, but I also know that a lot of the work can be done yourself if you're willing to learn and have someone experienced on call.

I have noticed as well that labor is the biggest expense, and I am willing to refuse clients that are too picky for me.  Especially at the beginning.  Around here, a lot of people take big orders, like 5 to 10 cords a winter.  I do not want the 1 or 2 cord deliveries.  And by not having to make big payments, I think I'll be able to pick and choose my clients.  (Am I dreaming here as well?)

Worst case scenario, if I don't end up making any money with the processor that I buy, I still get the benefit out of it for the rest of my life.  I will always heat with wood, and so will my parents, and family, so I will always have that baseline need of production.

It was said in a reply that I would be hard pressed to find a processor for under $6000.  I agree, and misspoke.  This is the processor I am looking at here in Canada, and could probably get it for $9000 to my door.



Again, the trick for me will be slow and steady.  Right off the bat, I'd be getting a return on investment because I use the wood myself, so decrease the time I spend cutting my own wood can be investment in some of my other projects until this one is self sustaining and finally profitable.

Thank you everyone for your inputs.  They really help me to critically think my project.

[Corley5]

  Having your own wood from your own real estate is the best way to make firewood $$$.  Unless you have a very large wood lot of your own that is renewing at the same rate you are harvesting you'll run out of your own wood.  Having and producing firewood as part of a logging business that buys and produces timber sales isn't bad but once processing and delivery costs are figured in I don't mind seeing 10 and 20 cord loads of 100" hardwood pulp leave my log jobs.  Buying firewood in log length to process is a hard way to go.  If you plan on buying hardwood pulp to process into firewood you need to put pencil to paper.  Not that it can't be done.  It is done but margins are thin.  Equipment, fuel and oil, maintenance and repairs, insurance and more wood to process leaves few $$$ for groceries.  Been there.  Done that   

[Corley5]

Don't forget taxes 

[WV Sawmiller]

I do not want the 1 or 2 cord deliveries.

   I assume this means if they buy 1-2 cords they will have to pick it up themselves.

   Another option is to just charge a high delivery for small orders and that will either chase them away, induce them to pick up themselves, or buy a larger order. You might be surprised how many times people are willing to pay the extra charge and thank you for it. Just because you or I would not pay that for delivery doesn't mean others would not. You are setting up a Service Industry and need to keep that at the front of what you are thinking and doing.

   Good luck.

[Quebecker]

I guess it is a service industry, isn't it.

I will have to re-think my delivery method. 

I was wondering about the taxes.  I am in Canada, so anyone who is in Canada, feel free to answer this one.

How do I pay taxes? 

I assume I don't charge the client any tax because it is raw material.  I'd only pay taxes on my declared income.  How do you handle your taxes?

[WV Sawmiller]

   If Canada is like here and you make any money send it to the tax people. If you find some left over you made a mistake and need to re-file and send that too.

[Brucer]

Quebec has it's own tax rules (even federal taxes). I'm guessing they will be somewhat similar to the rules in the rest of the country.

Income tax:

If you set up your business as a corporation, the corporation will be taxed on all the profits it makes. Any wages the corporation pays you will be a business expense and will reduce the business profits (and the business taxes). The wages you receive will be added to your income and taxed as personal income tax, probably at a much higher rate. Right now business taxes in Canada are quite low and the new government shows no sign of increasing them. The business can also pay you a dividend which may be taxed at a lower rate. If you're considering going this route, get an accountant. In Quebec this is covered under Business taxes.

If you set up the business as a sole proprietorship, the business earns money and you can deduct expenses from the income. The net income the business makes is added to your income and is taxed at the personal rate. In Quebec this is covered under Citizen taxes, self-employed.

Strictly from a tax point of view, incorporating your business allows you to hold excess profit (that you don't need right away) inside the business where it is taxed at a lower rate. If you study the tax rules, you may not need an accountant. A good bookkeeper can be a big help.

Here in BC the provincial income tax and federal income tax are similar, just the rates are different. Quebec may be different.

Sales Tax:

Federal sales tax (GST) is a value-added tax. If you are a "small supplier" (total annuall worldwide gross sales less than $30,000) you do not have to collect GST, but you can if you want to. Bascially, you pay GST on everything you buy for the business (raw materials, machinery, operating supplies, etc.) and you collect GST from your customers (and submit it to the government) on everything you sell. Here's the important thing -- when you file your sales tax return you can claim as a credit all the GST you paid on business purchases.

There is a simplified method for doing GST calculations but I found for a relatively simple business that it was easier just to keep track of all the GST I paid (keep your receipts!) and all the GST I collected (keep your invoices!) and just total those. Unless your business is making hundreds of thousands of dollars, you can file once a year. The forms are simple.

Provincial Sales Tax (QST in your case) is something I can't advise you one, except that apparently you don't have to collect it if you're a small supplier (same definition as for GST). Here in BC the provincial sales tax is NOT a value added tax. On the other hand, firewood in BC is exempt from the provincial sales tax.

You can find most of the information you're looking for here: http://www.revenuquebec.ca/en/default.aspx . Don't try to absorb it all at once .

[justallan1]

If you have free wood at your disposal I feel the number one thing to think about would be the location of your buyers and if you can compete with others if you have to deliver very far.
Before I went into debt with the numbers you are talking about I'd definitely have contracts on paper, if that's even possible. Other than that, I think starting out small with a splitter, truck and trailer might be a smart choice to test the waters and see where you need to grow, but keep your job in the meantime.
Where I live you don't have to claim individual transactions of less than a certain dollar amount (I think $400) so for me it has been the way to go.
Something else to consider, pine has been $140 a cord here for awhile now, I planned to up my price to $160 this year, but for whatever reason everyone else decided to battle it out and go $120. If that happens can you still make ends meet? I have sold and delivered exactly one cord this year at that price and only because it was to a single lady with a couple kids and I need to get a cord to some elderly folks that don't have much, but that's not making a living at it.

[North River Energy]

Your dream is realistic if you're willing to dream slowly.  And by that time you might wake up and realize the dream isn't so dreamy.

On the other hand:

Any new venture requires a starting point.  Maybe here:

My first year goals make sure I can produce all my firewood and my father’s firewood for our own forest,

and add a few friends to that just to bump up the workload.
 
Pay extremely close attention to how long it takes to produce and deliver each cord of wood from start to finish, and use that as a baseline for worst-case scenario earnings given the historical market value of firewood in your area.
Rather than buy 'newish' equipment, start out with an older but solid dump truck, generic cheapo splitter and spend the savings on a good elevator. 
This will give you a lot of things to think about regarding process and material flow without getting in too deep. Then you can make better educated decisions on which piece of 'new' equipment will provide the best bang for the buck.
For instance, that 'processor' you linked to is a good way to lose time and 9k.  With a millwright for a father, and I presume some metalworking skill, you two should be able to do far better with a home-built.
 Meanwhile keep your day job.  Two jobs will help focus your sense of time, time being one of those extremely limited and indeterminate resources. Speaking of which, firewood production is as much about material handling as your day job, if not more so.

Bulk deliveries generally come with the assumption of a volume discount.  Kinda foolish when you spend the same amount of time/volume to produce one cord as 5. The flip side is that smaller quantities of almost every consumer good sells for a higher price/volume.
If you treat your 1 and 2 cord customers well, which is to say consistently give them exactly what they want for their heating needs at a price that keeps both of you happy, you'll be setting solid foundation stones for your enterprise.
Firewood is both a product, and a service.  If you want to succeed at the higher end of the market, you'll need to hit both targets dead-on, year after year.
It's been said that dreams are a mechanism for the brain to work out 'conflicts' found in consciousness. 

Work out all the details prior to sleeping, and your dreams will be pleasant.

[Brad_bb]

In the last few weeks I made firewood for the first time.  About 2.5 chords of hardwood, predominantly Mulberry which is notoriously twisted grain.  I rented a nice splitter for $140 for 24 hours if I remember correctly.  It's hard physical work for sure.  There is a lot of time invested from bucking, to splitting, to stacking.

I recently made friends with a local firewood guy.  He has a really honed operation.  It's a 2 man operation.  I would think you'd need at least two guys to do firewood properly.  He gets all his wood for free from local tree guys, not loggers).  He makes boutique firewood, making small hand carry packages for a local grocery store chain and gas station chain.  He makes a lot more profit on boutique firewood, making the additional packaging labor worth while.  Boutique firewood sell for more money and sells the most in spring and fall for people having backyard bonfires, or going camping.  Summer is second best, and winter is the slowest season for that niche of the business.

He has good equipment to make his operation very efficient. It's taken years to get to that point.  I would think it a bad idea for you to go out and start spending a bunch of capital on equipment before you've had a good taste of the business and before you know you can handle the work, get contracts, and be able to keep your contracts fulfilled.  If you falter, you'll lose them.

I don't sell firewood, but this is what I've gathered lately from the firewood guy I know.