Making Money with a Sawmill Business

Plan with a focus on high-margin production, and you might make money not just wear out a saw. January 14, 2008

I started my company a year and a half ago with my business partner, a logger. I run a manual mill, and am struggling working long hours to produce enough to keep moving on. I have come to the point where I must take out a loan to cover a hydraulic mill, and create a serious business plan. This is my passion and I am ready to do whatever it takes, as long as I can sleep at night! Are there any good books related to wood or sawing and business? What have you been through to get to where you are now?

Forum Responses
(Sawing and Drying Forum)
From contributor J:
Sounds like you're about to have a lot of fun. How much are you producing in an hour with your mill? What is the type of mill? And what is the average size of your logs?
Answer these questions, then you can see how your ROI, or return on investment, pans out.

A hydraulic mill sounds wonderful, but would a Peterson or Lucas be just as fast, with a lesser price than a hydraulic mill? My Lucas did 700bf an hour. A buddy running his Wood-Mizer told me he does about 300-400BF an hour, except he paid a lot more for his unit than I did for the 825 Lucas.

I would look up SCORE (Service Corp. of Retired Executives) - they can help you wade through some issues about business, and they are no charge.

From contributor R:
Think long and hard before you do anything. Luckily, though, even nice hydraulic mills are a relatively small investment as far as starting a small business. I have a story that will illustrate that bigger is not always better, and cutting more doesn't necessarily mean success.

I have a Baker 3638D sawmill, and have been in business since early in 2000. Mine is a part time business that was designed to become full time within a few years. The first year or so, I was busy every Saturday and Sunday, doing any job I could find. The money was good, and within about a year, I could easily say that I had recouped my initial investment of the sawmill. At that point, and after realizing the amount of work involved, even with a very automated machine, I began to get a little picky with the work I did, and how I spent my free time. I started charging more, charging more to travel, and limiting the free logs that I accepted from tree guys. I only got involved with jobs that I knew I could make top dollar.

Two things happened. I started working less, and I actually made more money. It was a wonderful thing. I focused on higher end projects, taking logs from a customer, and returning finished millwork or flooring to them. I bought a kiln, and subbed out the millwork to another shop, and passed the cost on a little. I dry for other sawyers in the area. I accept tree service logs that I know I can turn around quickly and sell. Now I spend about 40-50 hours a month "working" with my business, and am able to make what most strive to make working full time.

The other example is this. A very dear friend of mine bought an identical mill and set it up for volume. He had an arrangement worked out with a log broker where all F1 logs - walnut, cherry, ash, and oak - were sent to his little mill. The log broker paid my friend to mill the logs $250/thousand on a finished lumber scale. The log broker is the one that made out like a bandit.

Standard cutting costs at big mills are between say $75 and $135/thousand, so even though he was paying more in the form of a processing cost, my friend had at least an 18-20% overrun on the logs (large butts). Production on his Baker was 6-7000 bdft daily, which is a lot on a bandmill. He had a nice setup, with log deck, conveyors, and edger all inside, and a long green chain. He worked and had two full time employees. On his good day of 7 mbdft, he grossed $1750, which never was enough to cover a more organized business. When you have full time employees, payroll taxes, workers comp (in the wood industry!), equipment overhead, building maintenance... you just can't compete on a production oriented level. Then, if he had a breakdown, his day was ruined and he would lose money. He worked himself to the bone, sawing, staying up all night sharpening saws, cleaning up the mill, and the log broker is the only one that ended up making money.

Anyway, I'll sum up this long story. I'm not saying that you can't make a living doing what my friend tried, but it will make it much harder. From what I've seen, heard about, and tried over the past seven years, don't do this unless you control your own ability to make a profit. Don't do this if you think you can make out sawing just for a small processing fee. Manage your own marketing and seek out high margin jobs before seeking out high volume jobs. Remember, putting money in your pocket is the real measure, not hours sawing on the mill. On a positive note, you can get a hydraulic mill in the mid 30's now, which isn't the end of the world, and if it doesn't work out, these mills have an excellent resale value.

From Professor Gene Wengert, forum technical advisor:
The volunteer at the Value-Added Processing Forum here at WOODWEB, Steve Bratkovich, has a great book on business planning (free).

From contributor B:
You got a real nice response from contributor R. You are out to make money and not just wear out a saw (and yourself). You have to pick your jobs and hold your prices at a profitable level. I custom saw for different people with small amounts of logs. I always tell them it is by the hour. Some want a price by the board foot. I estimate the hours, add a little and give them a board foot price, and tell them what I did. They get the point in a hurry, and I get my hourly rate. The way I look at the mill is that it is no less a piece of equipment than a backhoe or small cat for hire. Actually, that is well understood.

The two dry kilns pay the bills most months. I put the second kiln in to dry thicker products. Because of this I have picked up all the drying business from a major gunstock importer friend of mine. I also pick up all kinds of odd jobs in the area for the kilns. There is a shortage of small kiln space in many areas. Prepare to invest in the 15K range for one kiln and have a little bit of a learning curve running it.

Another profit area for me is custom moldings. You would be surprised what your local building supply store has to pay for even s4s oak. Usually over $5.50 a board foot. Oak base and crown are very lucrative also. One store can keep a small operator very busy, and you have to be dependable to get their business. Be prepared to buy wood from other sources to be dependable. This seems contrary to reason when you are producing wood, but is easy to do. It is a bit humbling to buy planed SLR1E oak for less than I can produce it for. It makes you realize how much the big boys can produce.

If you keep at it and use your head there is some potential to make a living. But now I see the last three years that I could have made more working as the Wal-Mart greeter, and I would have had benefits to boot. (But I would not have been around to see my son grow and eat lunch with my family every day!)

From contributor A:
The place you are fixing to go is paved by the bodies of many who have ventured out before you. Only the best will make it. Sometimes someone will stagger into a good deal and come out just fine. Most, however, come to face the hard work and soon lose the taste for it.

There are no "just plug in your name and number" templates for sawmill business plans. I know because I just last year spent many hours making one, only to find that the banking industry does not really understand manufacturing or sawmilling. What you do need to know is the cost of the mill and running cost. What is labor going to cost, and how will you handle the increased production? The business plan is you telling them just what you want to do and how you go about doing it...

1. What is the money for?
2. What does that do to repay the loan?
3. What costs are associated in running/production?
4. Who is going to pay this and do you have a contract/purchase order?
5. Who is going to cover this loan amount when you are not sawing?

Start out typing it like you were here in the office telling me about it. Then break it down in the five places and plug in the numbers. If you have the coin or credit to borrow the money in just your name, you will be ahead. The SBA and others will bury you in paperwork. Get the book Gene was talking about.

And if a man were really sawing and making $1,750 a day with just 3 hands and could not make it, then there were other problems. Because if he was sawing just 20 days a month, that is $35k and labor would be less than $10k, with other bills another $10k, and the high cost of fuel $5k, that leaves about $10k laying around. I know because I do this the hard way.