A Written Cash Flow Plan Is Also Known As Selling Reclaimed Lumber

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Selling Reclaimed Lumber

My business partner and I decided to invest in a project that would provide cash flow, profit and ultimately an asset. We decided to buy a 115 year old Bourbon barn, tear it down and sell the broken materials. We had no previous experience in the salvage, demolition or lumber industry. The purpose of this article is to share our experiences. Hopefully readers will learn from our (mis)adventures. The article is organized into sections titled Business Model, Sales and Marketing, and Operations. Also, a history of our barn is included.

Business Model – 6 Insights

1. There are no trade associations or certified agents in the reclaimed wood market. In general, the reclaimed wood industry is a fragmented market with tens of thousands of local or regional brokers and manufacturers.

2. There is at least one, often two, brokers involved in buying and selling timber products. As a seller, brokers do not work for you. They usually take money from the buyer and then take their fee or percentage and then pay the seller. Since only one broker is involved there is a natural conflict of interest.

3. Buyers of reclaimed wood do not always perform a site inspection of the material before purchase. Digital photos and samples are part of the contract, along with the broker’s advice or inspection. Unfortunately, buyers may not know what they’ve received until they offload or add value to the content at a later date.

4. The parties involved in business deals are often considered positive: the buyer, the seller, and the broker/s. Out of the seven different sales transactions with different buyers and brokers, we did not feel that any of the contracts were executed as agreed (load out, final quantity, species, grade).

5. The reason players feel shafted is because the terms are usually not put in writing. No contracts, deals kept changing (put it in writing). Sometimes players put it in an email but mostly it’s on the phone.

6. Fuel increases and a weak economy hurt the profitability of our venture. Because reclaimed wood is typically used for housing (flooring was the biggest demand), a downturn in the housing market hurt our plan. Also, as the supply of wood for pulp decreased, many potential customers were looking at new wood versus our old wood.

Sales and Marketing – 7 points

1. One mistake we made in the project was not selling the materials early enough. In retrospect, we should market content early to build relationships and find channels to sell our product. We waited until all the lumber was down on the ground and bundled up, which hurt our cash flow. Also, it takes time to meet new buyers and develop a network (if you’re in it for the first time). Another mistake we made was not stacking, also known as sticker stacking, we were cutting our wood. We learned that it is a good practice to pick up “sticks” like tobacco sticks before they are unloaded. Sticks are placed in rows of boards to allow the wood to breathe and prevent rotting. Stacking wood also makes loading wood easier. Our recommendation is not to wait to get the sticks. Unfortunately, we had to buy it from a saw mill and pay more.

2. The more value you can add, the more revenue you get and the more risk you take. Value added activities can be sorting, cutting, drying, delivering and finishing. We found it really worth the investment to count each stack and mark each bundle with type, board feet and location. If you don’t, you’re setting yourself up for compression problems, revenue loss, disputes, etc. The terms of sale must be defined, as basic as it may seem.

3. Species may seem important to potential buyers, but it seems that every broker and potential buyer claims the wood is a different species or what another expert says. Also, species rarely cost us much. More important than species, dimensions fetched higher prices. The longer and wider the material, the higher the demand we always find for our product at a higher price.

4. The uses of our content are varied. We sell flooring, cabinetry, home improvement and furniture to buyers and brokers. If the wood has defects such as worm holes or bolt holes, it has a value (often a higher value).

5. Screen potential buyers and brokers diligently. Meeting buyers on site is usually unproductive unless they are serious, established and broker content as a full-time business. It is important to settle on a broker that works for you. Brokers can bring in multiple parties to buy your content. There can also be a broker for the buyer and a broker for the seller.

6. The intranet is a great place to generate interest in your content. Wood Planet.com, Craigslist and Google searches on “Reclaimed Lumber” generated good leads.

7. It helps to have a great story to tell about the barn you’ve reclaimed (see “Our Bourbon Barn”).

Operations – 9 tips

1. Measure the board feet of your material after stacking it, so you know if there is any shrinkage and show the buyer that you are organized. It helps to place a plate identifying quantity, type etc. on each stack.

2. Train your crew on species types so they don’t mix oak with poplar or pine. Cut with a knife to show the grain, a simple map board or scale can show different grades and species of wood.

3. Make sure there is room for a flat bed so semi trucks can be easily loaded and handled.

4. Safety and Security: Make sure you are diligent in the way you secure wood and equipment. Unfortunately, we encountered many thefts or materials and tools. Ensure the project has safety equipment, procedures and training in place.

5. Capital equipment: We should purchase a long fork lift. If you invest capital, you can sell the project after completion. This is an opportunity to reduce labor costs.

6. Organize before you take down the barn. Where to place the wood piles should have been well planned.

7. Do not work your crew in poor conditions. We worked hundreds of hours in muddy, wet conditions with poor productivity.

8. Make sure you have permits, insurance, licenses and cash. It is important to have insurance for your crew and funds to pay the crew. To include one of the principles many of our crew members have stepped on nails.

9. Take lots of photos of all stages of the project, even before the project. Have samples ready to ship.

Summary

My partner says he will never tear down another barn. I disagree. If I get a really good deal, I think the lessons we’ve learned will make the next project more profitable and satisfying.

Our Bourbon Barn: A Rich Kentucky History of Its Owners and Descendants

Mr. Wertheimer, from Little Rock, planned to go into the restaurant business. He met Ripe at a party and they went into the liquor business together. In the 1940s (shortly before WWII) Mr. Wertheimer became co-owner of the Hoffman Distillery Company (Lawrenceburg, KY) with the Rippe family. Born in 1933 Mr. Wertheimer’s grandson Edward said the distillery and warehouse were erected 50-65 years before his birth, with the barn in the 1880s. Our barrel barn was the oldest warehouse on the distillery property. At one time there were three warehouses in total. The other two were set up after grandfathers got co-ownership. Edward spent much of his youth hanging out on the creek in Lawrenceburg. Later, Edward Wertheimer of Cincinnati sold the property to Julian Van Winkle III in 1981. It was renamed the Commonwealth Distillery Company, where the bourbon was labeled under Old Rip Van Winkle. Julian (of Louisville) sold the owner (in 2000) we bought it in 2007. Unfortunately, much of this history has been lost (not recorded), which is the purpose of the article.

Before WWII, bourbon barrels were floated down the creek, which feeds the Salt River, which connects the bourbon distillery to its original warehouse. Barrel handlers manually lift the barrels from the bay and place them in the warehouse. The barrel was full and waterproof. After trucks became commonplace in this region of Kentucky, the barrels no longer floated down the river. Another fun fact was that across the road was a shed where a government gauger lived. The shed still exists. Each barrel was taxed and had to be stamped by a government official.

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