Expanding portable sawmill business

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A hard look at the pros and cons of expanding a business. October 9, 2002

I have had my portable sawmill since '96. I've bought two trucks, a Cat loader/backhoe and an edger and have been through a couple different forklifts.

I often toil with the concept of expansion. To produce more lumber products or by-products will in many ways result in more expense with a smaller profit margin, ultimately resulting in a greater need for production to keep pace with proposed cost and profit. A vicious circle of work more, make less.

An example: I could convert slab and edgings to shavings. If I were to buy a shavings machine to produce shavings as a byproduct…

Investment costs:
* 40k for the shavings machine
* 5k for a dump truck (used 12 steak bed dump)
* Employee to run the machine and deliver shavings to local horse farms (Responsible employees start at $10/hr or $400/wk)
* Insurance on the vehicle (Commercial insurance is $1700/yr)
* Fuel, maintenance and miscellaneous expenses

Payback: $50-$60 per delivered load of shavings with a reasonable expectation of 2 loads per day 4 days per week or $400-$480/wk.

I can conceive of running out of material to make shavings, as well as starting slow to develop a customer base. But where is the profit?

You can minimize your overhead using a properly outfitted portable sawmill for under 40k. I can charge 175/mbf (in my region of the country) and expect to cut 2mbf per day for on-site sawmilling (often charging extra for tramp metal or extremely dirty logs), but in my case, that's $350/day with less than 15% in operating expenses.

We have also discussed custom mouldings, mulch, wholesale contracting, retail sales, and expansion equipment such as scragg mills and a swing sawmill for the oversized stock. Just no good opportunities.

There are other problems with expansion:
Zoning: To operate a fixed based sawmill operation, one must be properly zoned.

Facilities: If a small sawmill is to expand and offer more retail and wholesale products, the need for covered storage and operating area is paramount, not only for the temporary storage of material, but the additional processing of the wood such as planing, moulding, drying, etc. This area can easily suck up 50,000 square feet of indoor space. Let's look at the cost to buy or lease that.

Employees: Add 30% to one's wages for the extra taxes and let's not even discuss unemployment or health issues - both are expensive! But to expand means to hire more people to handle the equipment or retail and accounting.

I've watched the forum for discussion on the full time sawyers who are working more towards the commercial end. I wonder how you can complete buying timber, sawmilling, then selling wholesale. It certainly doesn't look like a large margin for error. The grade of lumber produced can be quite fickle with your cash flow.

My resulting decisions for my location and business are to continue salvaging timber from tree services (with my trucks), selling prime timber, and sawmilling lower grade timber. Continue providing on-site sawmilling for local farmers. Continue to take custom orders for lumber sawed from the salvaged timber, both hard and soft wood, resulting in the best profit for the effort. Keep a couple thousand feet of dry planed grade hardwood lumber for the occasional garage cabinetmaker on hand.

We are going to go to a timber framer's workshop late in August to learn about timber framing (there could be an expansion option... beams or small building packages). No real plans that way for now, though.

I would be interested in hearing comments on your experiences with portable sawmilling and expansion possibilities. There are a lot of folks looking at this as a business thinking simply retail lumber - (log cost + labor cost) = profit. I see it as a bit more complex.

Forum Responses
Well said. Nevermind the bad debt one often acquires when extending terms to those wholesalers who buy your lumber. I've been bit many a time that way. Another cost is opportunity. What is your time best spent doing? As a small portable sawmiller, I sometimes find myself in a time crunch where I'm hurrying jobs in order to get on to the next one. For the sake of production, you buy trucks, trailers, forklifts, winches, lifts, etc. Before you know it, you have overhead and from there it's almost always downhill.

And then there's the guy that comes in and says "Well, the guys down the road a piece will do it for half that amount. Why are you so high?"

There is a lot of merit in what you are saying. I started with just a mill (Wood-Mizer) five years ago. I have since bought a Bobcat 743B and Wood-Mizer edger. I still do most of the cutting myself, but get my son or daughter or buddy to help me out for bigger jobs (I pay them well). One thing I noticed when I double the manpower is that the production never doubles… hmm. My greatest improvements in production have always been with better equipment and innovation.

One thing us sawmillers have going for us is our expertise/knowledge and we are able to get decent pay for services. I am currently on a "canting spruce" job where I get $70.00 an hour for me, the mill and the Bobcat (he supplies Bobcat wrecker). The client feels he is getting value for the pay rate. On the other hand, I also own a Peterbilt 6 axle log truck that makes 78.00 an hour. Expenses on the log truck are astronomical compared to the mill equipment, the difference being that you can't swing a dead cat around without hitting a trucker who "can do it for less".

If you want to make it big, that's okay, but if you want to make an almost decent living, keep yourself in shape, meet some really cool people, feel like you accomplished something at the end of the day without stepping on anyone's toes, then smalltime sawmilling is for you.

I am one of those that went big and keep getting in deeper. The stress on me is intense. It started because one customer said "You saw it, we will buy it". He has been true to his word for 15 years. We started with one LT30 WM and now have two mills in two states with overhead scraggs and two Super WM. We have edgers and all the other support equipment needed to meet demand. We got a moulder, which is one of the best things we ever did. We branched out from our big customer, who has been great for us. The one thing that I wish I had not done was buy logging equipment. But at the time we needed log supply.

Would I do it over again? Yes, in a heartbeat, because I love the action. I love satisfying customers and I love seeing a log turned into a good product. People told me I could not do this with cedar and so far we are still in business with 20 some employees and looking to grow more.

But I am fullfilling my dream, no one else's. I think that is one of the most important things to keep me happy.

Someone told me of a man in the deep south that had a Wood-Mizer LT15, an old truck and two mules. He would cut, skid, saw and load out 12-20 ties a day by himself. I retold the story to someone and they scoffed at such a low production rate. Well, if you figure it only cost him a couple gallons of gas and a couple quarts of oats a day, one blade to re-sharp, he made a pretty good wage for himself and probably didn't develop ulcers.

I will weigh in on the "smaller is better" side. All of my equipment has been purchased used. I do all of the cutting and sharpen my own blades. So far, with no advertising, some months are busy and others are slow. Overhead is real low - mostly fuel costs and service to machines. I am going to do this cutter thing full time as of next June, when I end my 25-year teaching career. I figure the cutting has paid for all of the machinery with some profit over that. Over the last 10 years Mrs. Woods and I have cobbled together 85 acres, ending up buying the farmhouse at the front of the property. I now harvest 50% of my log supply and should have around 100 cord of firewood next year. No stess, fair profit, and let's not forget the fun and good feeling, like when I see the 50 x 100 riding ring that I cut the board and batten for or when I drive by the post and beam carriage house I cut the frame for.

I'm a WM LT40 owner, and I've come to realize that my best profit is turning raw lumber into a finished product. Every time I process a stick, I eliminate a middle man, yet retain his markup.

Let's run through a scenario… mill + mkup - kiln + mkup - s4s + mkup - millwork + mkup - cabinet/home theater system/finished product + mkup.... See where I'm headed? That one stick got marked up five times before I let go of it.

What's the advantage? Well, profit gets spread around. I've learned that some jobs have higher return than others, plus it is comforting to realize that another area of profit is going to cover the bad deal that happened to fall through before. Variety is nice - it's rewarding to be working inside when the weather is most taxing outside. And the tools, yes! I've got lots of tools (turn in one of your large machines for some cabinet making tools).

Is the economy fickle? It can be if you only market to one type of customer. Spread out a bit. Think of how many times the material you're marketing is changing hands and what you can do to hang on to it for just one more markup.

I am in the "keep it small, keep it all" frame of mind. I aim my business toward the custom, onsite end of the market. I do receive logs from tree services and contractors, and sell a little lumber from time to time. I have a small shop with woodworking tools and a trailer and Bobcat to help move logs and lumber. With the addition of a kiln, I would be happy with my size. My real job works me at least 60 hours a week and if I could put that much time into my sawmill, I would do okay.

I went to the banker and said "I want to borrow $21,000 to buy an orange saw mill to pull around behind my truck". Banker says "You will starve to death, go back to work building Ranger Boats and feed your family". After many hours of haggling and the note to the 60 acres, the banker says "It's a good thing your wife has a good job and will feed you".

First week I owned my mill I made the first two month's payments. I love what I do. I too have to look at expanding this operation or putting up a gate on the driveway and locking them out. Machines, logs and capital aren't hard to come by - it is labor that is holding me back.

From the original questioner:
I do work full time and then saw or run logs on my time off, taking up all of my time.

I did find a Nyle 200 and set that up for drying lumber and bought a RBI 20 moulder planer last year. But I have reached the point where, to actually use all of the equipment, I would need to hire someone to manage and run things while I am at work. Not to mention that it's easier to stack lumber or plane lumber with a helper.

I think I've reached the expansion limit without going to a commercial facility/store front with employees.

By the way, I have only expanded my equipment with earnings from related business - i.e. sawmilling, running logs and selling lumber.

I would like to hear about anyone who has tackled contract cutting (successfully), either cutting other mill's logs or buying stock to fill lumber contracted orders. How do you grade, if at all, and what problems have you had? I can see that the load of edgings and slab could stack up, not to mention the problem with trucking logs and handling packaged lumber.

I spent three weeks last winter custom cutting for a large circle sawmill. They had large piles of pine and spruce logs they wanted cut into 4 x 4's and provided a man and forklift in their backyard. They wanted me to cut for 20 cents per bd ft, but I would only cut by the hour ($50). In the three weeks, I cut all the 8's, 10's and 12's, when they wanted to stop to tally everything to see how they were doing and they decided to stop because they were not making enough. I was not surprised because they had too many one stick "pecker poles" and big ugly spruce and Scotch pine logs. They did not want to sort out the small, knotty and crooked logs and it was going to get a lot worse with the 14's and 16's.

The thing you have to remember is the business you are working for has to make a markup on what you do, so you have to either be more efficient or take less for what you do. It's kind of the opposite of trying to capture more of the value added markup that is available. One of the limits on my efficiency on this job was the hourly man who was my helper. He was a good worker, but I could not get him to think and prepare ahead while I was sawing. You know, the little things, like rolling the next log on the loading arms, having enough stickers handy for the next layer, etc. They have to think more about how cold their fingers and toes are, how many minutes till the next break or lunch and how many hours they will have in this week.

For me, the first and biggest problem has always been log supply, both quantity and quality. I choose to concentrate on grade sawing of hardwood and have had to do more logging to obtain the logs. My goal is to have the pulp sales pay for the logging equipment and expenses and that is eventually going to work, but it sure takes a lot of capital and time away from sawing.

That brings me to the next problem, hired help. In this business, our work comp rates can be 50 cents per dollar of payroll and even if you accept that, it is very difficult to find someone for this demanding work. So you can either flirt with the independent contractor method or take them in as a partner. This is why most of the loggers in this area are small family operations.

Another thought. How many pieces of equipment run by themselves? The dry kiln keeps on working around the clock. Even if you buy equipment as you go and you do not borrow money, you are losing money through lost opportunity, depreciation, obsolescence, insurance, etc. Concentrate on the most profitable of the value added opportunities and let others do what they do best. Should you log your own woods or hire a contract logger to log what you need? If you are a cabinet maker, where is the most profit per hour? What do you enjoy doing the most? So, can a person have too much equipment? I doubt it.