What Would You Do?

[Bobus2003]

My Boss approached me and Offered to sell me his logging business. I'll get all his Equipment.. '80 FMC 210CA Track Skidder, '91 CAT 518 Grapple Skidder, '95 Timberjack 450C, '91 Timberline 3530 Delimber, '99 Timberline 3530 Delimber, '96 Timbco 445, Work Trailer (Welder, Air Comp, Pressure washer), 2500 Gallon Fuel Tank, '01 Dodge 2500 Cummins 4x4 work truck and All his Timber Contracts. He offered it to me for what I think is a Steal of a deal, Just not sure how to finance it. Plus with the Timber Industry in its current condition is this a good time to buy? Just kinda at a loss right now as how to pursue it.. I know i have alot of Penciling of cost to do right now

[islandlogger]

Sounds like a opportunity to me!! As Bill Bailey always said "aint nothin ever been got that aint been went out after..." I've lived by that motto for a long time now.
I guess I would wonder how has the business thrived since you have been working with him, and why does he want out? Is he offering the business at a "steal" because he likes you and wants to give you a chance or is he hard up for money?
Yeah the timber industry is tough all round, but it's a smart owner that looks to the future and just keeps things rolling along and fights thru the mud and swims in the honey  and sounds like some nice equipment to start things off, I sure did enjoy the FMC I ran for awhile, man can those things pull some serious turns of wood!!

islandlogger

[mahonda]

Nothing ventured nothing gained. Lots of cheap loans out there if you have good credit a good plan. Lots of areas offer free business plan assistance. A must if your going to try and finance through a bank. Good luck

[T Welsh]

Bobus2003,Sounds like opportunity knocking at your door! 1. are you inclined to keep on making a living in the woods 2.do you know the trade enough to take over the business end and makes things happen. 3. Is the owner willing to stay with you to guide you through the tough times.4. how is he wanting to sell,outright in one lump sum,payments each month. ask yourself the question,s above and truthfully tell yourself the answers,if you can make it work and still have money at the end of the month,think about times when you do not have money at the end of the month and how you are going to make payroll or fix a machine or put food on the table. running a company is not for everyone,I have seen son,s handed a perfectly healthy company and run it into the ground in a couple of years,on the same note,I have seen someone like you handed an opportunity and thrive and take a company to a whole new level. Sit down and talk this over with all involved,the owner,your wife(if married) and talk. and see where this leads you and if it still makes sense to you.start the ball rolling. be carefull,think ahead, and take slow calculated steps. but foremost be truthful with yourself. good luck,Tim

[chevytaHOE5674]

You know the saying "best way to make a million working in the woods is to start with 2....." 

If you can afford it without borrowing too much then it may not be soo bad.

Many of the bigger operators I know around here owe the bank soo much money that they have to be working 5-6 days a week no matter what just to pay for the equipment. If they are broke down for a couple days the payments and insurance bills set them behind with the way the markets are now. They will keep cutting even when the wood isn't worth anything because at least they have some income even if it isn't enough to break even, at least the bills don't have to come entirely out of their personal savings.

[Cedarman]

Make sure you have enough money to pay for a couple major repairs or several months of down time due to weather or unseen conditions.  Will you be able to sell all you can for the next several year? 
What would the downside be if it doesn't work out?

[WDH]

One of the most important considerations is the strength and stability of the market.  To make it work, you need steady take away of wood.  Building and fostering relationships with mills is critical.  If you do not have this in place, you could be the new guy on the block and fall to the bottom of the list and not be allowed to produce at your potential.  In my experience, relationships were the most important variable.

[bill m]

Do you like working in the woods or do you want to be the boss? With that much overhead,equipment,employees,contracts etc. you wont have a lot of time to spend in the woods. I found that out with my tree service. I loved the challenge of tree work but as the business grew I found I was spending less time doing the work I loved and more time being a boss. Managing employees,customers and equipment became a real drag. Now I work alone in the woods every day and no stress. I don't think I could ever go back to being just a boss.

[Meadows Miller]

Gday

Bobus I have had the same types off offers a couple off times over the years when I was younger and the only thing I regret was not taking them Up on it Mate  When I was 21 yo I was offered a sawmill in Queensland not far from where Wisey boy and Sigidi are and Drew the owner was in His late 50s and had got me up there to do some work and get the mill upto speed production wise about 2 weeks in he came to me and said you know what you are doing son how would you like if I sold it to you on terms he had just spent $300grand on a new sawmill and it came with two cylinder treatment plant that had just been revamped with two cat loaders two forklifts all for the grand total off $550000 I was going to get a mill and treatment plant that was turning over about 2.2million a year  I had My ex fiance calling me and wanting to have another go and chose to come home to Victoria and do that instead it was a Poor choice on My part 

He just wanted a break from the day to day grind of keeping everything on the move  and saw someone with drive to work long hours and get the job done he was going to keep one off the offices and do timber brokering for Me on a percentage basis which would have worked out well for Us both 

I think He already knows you are going to find it tight for financing  So it wont hurt for you to ask him if you takeover payments on the equipment and agree a price for the business as a whole that you could probobly come to some agreement  Mate

Put it this way I think He sees something in you to make you a good deal as you said you "think its a steal " Mate 

Another thing to think about is if you can use his capital you could put money into a portable scragg mill to get rid of all those 7" and under top logs moneys where you find it ! and the way I see it theres money being left out there for the taking Mate

They way I see The Timber Industry in The USA is that you are at the bottom Now and that things are only going to pick up from here its not going flat out but good steady growth    So much So that I have No dramas with moving back To Mobile Alabama To start a life with Jesi and to start a Logging & Sawmilling Business there early next year  . Ill be starting with nothing I know it aint gonna be easy for the first few years but I already have strong interest from a couple of big companies  it might be up n down for the first while but as things pick up I aim to be their goto guy and thats when things wil take off Mate 

Best Regards Chris

[Hilltop366]

Take a real good look at what your boss does all day, Things like how many hours a day he works and how many days a week he works, and the kind of work he is doing then plan on doing it longer (learning curve), and the amount of stress involved. Then decide if you want to look at buying the company or not.

[chevytaHOE5674]

Another thing to ask "Why does he want to sell???"

I know a couple of guys that would sell you their entire logging outfit in a heartbeat because its long hard work for sometimes negative income and they just want out......

[Woodhog]

If some institution will bankroll the whole thing with the equipment as collateral you would have nothing to lose.

If you have your own money or assets against the loan you best do your research well.

The industry is in a real mess around here, they run heavy gear 6 days a week 24 hours a day and just earn a headache.

Margins are too small for the investment and operating costs here.

The most important thing about starting a business is how to get out of it, will there be a market for the assets or will you have to sell at a few cents on the dollar just to get out...

Will you be able to sleep soundly at night when you are running the show???

[Corley5]

I'd be nervous about financing a logging operation right now.  I thought long and hard about buying a harvester/processor a year ago and came to the decision that I didn't want to have to work for the machine.  I want the machine working for me    Look hard at the whole picture before you sign the dotted line 

[Autocar]

You can't fail if you don't try, I would go for it if its something you always dreamed about doing. Good Luck Bill

[Cedarman]

Make a serious business plan and get others to check it if you haven't done so.  Emotion can color the view.

[red oaks lumber]

if you decide to go ahead with buying the buisness, put a smiley face on the calendar on the date you do it. that way down the road no matter what happens you can look back and se that you were happy with your decison.
 like cedarman said have someone else look at your plan because, you as well as everyone probbaly have rose colored glasses on.

[Woodhauler]

My Boss approached me and Offered to sell me his logging business. I'll get all his Equipment.. '80 FMC 210CA Track Skidder, '91 CAT 518 Grapple Skidder, '95 Timberjack 450C, '91 Timberline 3530 Delimber, '99 Timberline 3530 Delimber, '96 Timbco 445, Work Trailer (Welder, Air Comp, Pressure washer), 2500 Gallon Fuel Tank, '01 Dodge 2500 Cummins 4x4 work truck and All his Timber Contracts. He offered it to me for what I think is a Steal of a deal, Just not sure how to finance it. Plus with the Timber Industry in its current condition is this a good time to buy? Just kinda at a loss right now as how to pursue it.. I know i have alot of Penciling of cost to do right now

Only you no if you can make this work!  If you feel it in your heart that this is right for you, go for it! When i bought my first truck in the mid 80s i had 0 dollars in my pocket! Borrowed 10 grand off to people for start up costs  and 85 grand off the bank! Qiute a jump for a guy in his mid 20s with a wife and new baby! Still trucking today! Had 6 new trucks and loaders and a few used ones too! Only thing you might watch out for is EMPLOYIES! they can make or break you! That is why i'm only running one truck by myself! I have hade 2-3 guys driving at times and it is always a nightmare!

[Bobus2003]

Well I agree with All thats been said.. Been doin alot of pencil work and think i can make it work.. I'm not afraid of the work or the amount I will have too put in, Just nervous about the amount of money to be borrowed and the not so stable timber industry.. Gonna talk to my boss this coming week about financing options

[woodtroll]

Is sounds like an oppertunity.
Here is somethings to think about in your neck of the woods.
The BH national forest is cutting hard, for now.
The bugs and the Jasper fire have affected the government timber base and will affect the annual cut.
They will not be able to keep this rate up in the long term.
There is 1 major mill company with a handful of other small mills around.
The Hill City area is so hit by bugs it will drastically affect the mill there.
Fuel prices are high, profit margin on hauling logs to the mills can be 0 or worst at a loss.
That is with low dollar fed wood. When that is gone the private wood will require more money to purchase the stumpage, less profit margin.
POL is highly volatile, one day posts are selling good next you can not give them away.
Equipment parts, and tires are up, insurance is high.
There is no telling when the beetles will be done here, and when is the market (housing) going to turn around.

All that being said I wish you the best of luck.  Sometimes the best time to get in is when things are at the bottom.
Markets will change, new opportunities will open up. I am very optimistic about the industry in this area.

[T Welsh]

Bobus2003,You have been listening to years of experience in these threads and all of it is the truth.now for the good part.you did the right thing by asking for advise,some may have scared you,but thats what its all about,life scares you too.after you have made up your mind.STOP and rethink the whole process over in your head again and see if you come to the same conclusion. talking to your boss,is the next step in payment options,and how well do you two get along.if he,s a good man and you like him ask if he is willing to stay on and help you. ask him why he is wanting to sell,is he having a hard time making payments? this will tell you a lot about the health of the business.you seem to have a level head on your shoulders,try to keep it that way and dont get in over your head with out a way out if it all goes south. good luck in the future. Tim

[Norm]

Nothing I can add but good luck. I remember going on my own and to say I was scared whit-less would be an understatement. 

[Cedarman]

Trying to do it for a fourth time.  Will know today or next week if we are successful getting the loan.
I am still paying on our expansion from 92 because I keep adding new toys, buildings and inventory of logs.  Paid off our expansion in Alabama and have since closed it down.  Opened a business grinding in Ok in 04, paid it off and getting ready to go in debt again to expand that business.
When you walk into a bank in Ok and tell them what you are going to do with cedar in Oklahoma and they actually laugh and say come back when you get it going you know the banks are not your friend.  We still made it work and now laugh at them.
There were many days and nights over the years that we sweated big time wondering if we could get by.
But each time we had very extensive business plans taking care of the 3 most important areas.
1)raw material supply ie. logs, trees, etc
2) proper processing equipment, ie. sawmill, grinders , support equipment, people
3)markets, and backup markets
As manager balancing these 3 things is what you do to make a profit.  Too little of any of the 3 can make for big problems.

[saltydog]

If you do i might be interested in your link belt. and dont forget you need a real reliable crew to run it all.

[customsawyer]

I started my business back when I was 25 years old but had one major advantage in that I didn't have a big loan hanging over my head. I have built my business up to where I had over 50 employees then brought it back down to where I have 2 part time guys.  When you have employees there will be times when you are working for them more than they will work for you. One of the other challenges is that in this market and a big loan you will have to put in some long hours which means your family will be making a lot of sacrifices too. This is some of the negatives.
On the positives this is what the American dream is all about. Going out into the real world and making it. There is a lot of satisfaction that comes from seeing your business grow and figuring out ways to improve it.

[Cedarman]

Oldest son runs the Ok business with his wife.
Youngest son is pretty much running the day to day of the sawmill in In.
I set priorities and handle the phone. 
Kids don't always take to the business.  In my case it is working rather well.
Even youngest daughter and wife get drafted to work in the mill. As I heard on the radio this morning, they get voluntold rather than volunteer.
It can be all consuming if you let it.

[Bobus2003]

I'm hoping I can make this work.. I'm gonna put some effort into it thats for sure

[stavebuyer]

A lot of good advice given. I would add that "adequate" working capital or lack of it tends to tip the scales for many. Cash to work with will make/save more money than any equipment you can buy.

[Warren]

Bobus,

Much good advice offered above.  I will only add two snippets.  First, do not put anything up for collateral that you are not willing to loose (hard lesson).  Second, ask your boss "What is he going to do in retirement ?"  A friend of mine worked in the excavating business for a guy for 20 years.  His boss developed cancer.  Thought he was going to die.  His boss offered him the same deal.  My friend took the plunge and bought a significant portion of the equipment and went for it.  Six months later, the boss recovered from the bout with cancer and went back into business competing head to head with my friend for the same business.

Fortunately, my friend had done a good job of building and cultivating the relationships with the builders. He weathered the storm.  As someone said above, you need to understand  "Why is your boss looking to get out NOW ?"

Warren

[Bobus2003]

Well I'm trying my best to get the financing to buy him out. Thats kinda the difficult part at the moment. Decided to try to borrow about $20K more than what he offerd it too me for, so that I have money to operate off. (Payroll, Break downs, Fuel, ect.) So I'm hoping by the new year something will have happened.

My boss Is going to run his Farm, and a Fleet of OTR trucks in the Oil Patch when he gets rid of the logging company. So no worries of competition there

[Ron Scott]

Much good advice here. One especially from WDH, "groom relationships" especially with the forest landowners and the mills.

[John Woodworth]

Why does your boss want out? thats lots of machinery meaning lots of loads every day to make payments.

[Ken]

There has been a ton of good advice already given but I would like to add my 2 cents worth.  You mentioned borrowing additional working capital of around $20K.  Will that be enough to cover things until you get paid from the mills you sell to.  My experience is that a Line of Credit equivalent to 1-2 months production is quite necessary unless you already have some monies to work with.  If you are short on cash and start to have your suppliers charging you interest on overdue payments it can really add up.  Lack of cash flow has killed many businesses. 

On the positive side.  According to your profile you are young and probably have lots of ambition. If you thorougly enjoy cutting wood give it a try if you can arrange reasonable financing.  To those of us that do have the "logging bug" there is nothing else we want to do for some strange reason. 

Cheers
Ken

[terry f]

      Really good advice on here. Are you going to continue to work or are you going to have to replace yourself? Will you have the same employees he has now and will they step up and help you make this work. The only advice I can give you is don't miss a payday, you have to pay yourself last. Like Ken said you're young and its alot easier to bounce back now if it doesn't work out than it will be in 20 years. Your boss saw something in you so I say take it and run with it.       Good Luck

[Bobus2003]

I'll Keep Working, Just have to pull Double Duty running Timbco and Delimber, Prolly have to Replace the Other guy.. He's a Bit hard on Equipment, and doesn't like to Do Preventative maintenance (Greasing, Pressure washing, Oil Changes)

[crewzer]

How well do you know the gear? It seems a bit old to me. Worn out gear can be a killer. As an owner/operator, while you are repairing, you are not operating. Production is key. just a thought. Good luck.

[inthewoods]

If it sounds appealing to you, I'd just be looking at the numbers.  What the contracts are worth vs. investment vs. reality.  If the the numbers look good & so does your plan, it probably will to a bank or investor also. 
A handfull of years ago I bought a 60' HighRanger utility truck & a bunch of seasonal electrical contracts.  We were able to afford buying the business out of pocket, so it sounded great to me... Kept a couple guys busy on it so it didn't require much of my time.  Although it took at least a year to fully find out what all the contracts were, or weren't... & that they were kind of a dead end.  I owned the truck for several years & sold it while I figured I still could; but at least that time I made back my investment a few times.
What seems to be the key for me is diversity.  Logging is great because I own equipment, seem to have work available, & own loggable properties.  But, I also own a construction company and have been a licensed builder for about a decade.
Look good at the contracts & all of your incurred overhead.
have a good 1
Andy

[CX3]

Get on your prayer bones for a few nights about it. If it still sets well on your heart thank God for the opportunity and go all in.  Never come home without a sore back and never go to work without thanking Jesus

[Side loader]

An old man once told me, whenever you're faced with a business decision no matter what it may be asked yourself these 2 questions.
#1.   What's the worst thing that can happen?

#2.   And can I live with it?

I know it sounds too simple but it is mighty good criteria. And has been mentioned pray about it. 

[Bobus2003]

As of right now its not gonna happen.. The one bank I talked too wants almost half down, the other won't have an answer till next year..

[barbender]

I'd be leary of the older iron if the boss is tough on equipment.

[CuddleBugFirewood]

As of right now its not gonna happen.. The one bank I talked too wants almost half down, the other won't have an answer till next year..

End of year is usually ver busy for banks, and many banks have lots of bad commercial loans on the books.  Not the best time to apply for a commercial loan. 

banks are very lery of new business.  Especially logging.  My day job is a bank lending officer for a small bank, my side job is logging and firewood producer.  You must have impeccable credit and a good amount down in many cases, I don't know any bank that would loan 20k over what you are buying the business for.  To high of risk.  The way to look at this is the bank is your business partner, if you go belly up, they lose all the money, and you have nothing invested (dollar wise).  Also, experence has show that tools and equipment can "disappear" in the woods, and in general what "banker" wants to mess with selling a beat up logging truck or skidder, those are speciality items for many banks. 

You can get creative with the down payment, ie do you have other assets to put up as collateral, equity in your truck or house.  But realize what you are doing.  I would also recommend you get your bosses tax returns from him  if you haven't already, and review those on the logging business, this will also help at the bank if you can show he is making a profit.  But you are still a new business, and something like 80% of new business fail in the first 5 years.  I would also talk to his accountant if you have questions on his tax return.  I know this sounds personal, but I did this with a gentleman before I started banking.  I was looking at buying a landscaping company.  If he doesn't show it to you then chances are it has not been good.  The average net margin in logging is something like 3%, which is very thin.  You only keep 3 cents for every $1 you spend.  Not much room to mess up. 

At our bank we like to start small and build up with a customer as we learn his management ability.  I would also recommend going to a community bank, and try several until you find a loan officer willing to work with you.  You may need to work up a contract to have it owner financed until you can get the financing arragged, or buy one piece of equipment at a time through the bank. 

As was said earlier, working capital is critical as well.   

To recap

1.  Review tax return and profit / loss statement, possibly show bank. 
2.  Consider owner financing (my dad sold his business this way)
3.  Consider financing just one piece of equipment through the bank as your down payment on the owner financing.  This would build your credit with the bank as well, pay this off then try to do the whole thing.  It would be easier for them to loan a smaller amount to try you out if you do not already have a relationship with them.


Good luck, and sorry about the rambling...I hope it helps.

[CuddleBugFirewood]

If you do buy it, you will also need to check with his bank and make sure they release the liens on the equipment.  I would recommend making the check payable to him and the bank he has the equipment financed with. 

you need to be careful, because when banks do commercial or ag loans they generally file a "blanket lien" which means "all equipment, tools, accts rec, inventory, etc.. etc."  is collateral.  So even though he does not make payments on the "skidder", it may well be collateral on an operating line of credit. 

As a banker, I wonder if he is not in financial trouble and needs to liquidate some assets if he is selling it at such a good price.  If that is the case you could probably get a better deal than what he offered.

Just food for thought.

[bill m]

I am amazed at the number of responses you got saying to go for it. I guess it's real easy to spend someone else money. Be aware that with that amount of equipment you most likely will not be running any of it as much as you may want to. You will have employees to do that and you will become a boss.
Don't ask me how I know

[John Mc]

Got to wonder why the boss is really getting out of it as well.

[woodtroll]

From an earlier post he (the boss) is moving to an oil boom area in a near by region with his trucks.
Profit margin is better there than the woods.

[inthewoods]

Whole lot a headache

Happy holidays!