My business partner and I decided to invest in a project that would provide cash flow, profitability, and ultimately an asset at the end. We decided to purchase a 115 year old bourbon barn, dismantle it, and sell the material that was dismantled. We had no previous experience in salvage, demolition, or the wood industry. The purpose of this article is to share our experiences. Hopefully the reader will learn from our (mis-) adventures. The article is organized into sections titled business model, sales and marketing, and operations. Also, included is a history of our barn.
Business Model – 6 insights
1. There is no trade association or certified agents in the reclaimed lumber market. In general, the reclaimed wood industry is a fragmented market with tens of local or regional brokers and manufacturers.
2. The buying and selling of the wood commodity involves at least one, often two brokers. As the seller, brokers are not working for you. They are typically getting paid by the buyer and then taking their fees or percentages and then paying the seller. There is a natural conflict of interest with only one broker is involved.
3. Buyers of reclaimed lumber do not always do a site inspection of the material prior to purchase. Digital photos and samples along with the broker’s advice or inspection are part of the deal. Unfortunately, buyers may not know what they have received until they offload or add value to the material at a later date.
4. Parties involve often feel positive about the business deals: buyer, seller, and broker/s. Not one of the seven different sales transactions with different buyers and brokers did we feel that the deal was executed as agreed to (load out, final count, species, grading).
5. Part of the reason why players feel shafted is that terms are not usually put in writing. No contracts, deals kept changing (put it in writing). Sometimes players will put it in an email but it is mostly over the phone.
6. Fuel increases and a poor economy hurt our venture’s profitability. Because reclaimed lumber is typically used for housing (flooring was the biggest demand), a dip in the housing market hurt our plan. Also, as the wood commodity dipped for pulp, many potential customers were looking at new wood versus our aged wood.
Sales and Marketing – 7 points
1. One of the mistakes we made in the project was not selling the material early. In retrospect, we should have marketed the material early to form relationships and find channels to sell our product into. We waited until all of the lumber was down on the ground and bundled, which hurt our cash flow. Also, it takes time to meet new buyers and develop networks (if you are in it for the first time). Another mistake we made was not stacking, also known as sticker stacking, our wood as we were dismantling. We learned that a best practice is to procure the “sticks”, such as tobacco sticks, prior to taking them down. The sticks are placed between the board rows in order to let the wood breathe and prevent rot. Stacking the lumber also makes loading the lumber easier. Our recommendation is not to wait to obtain the sticks. Unfortunately, we had to buy them from a saw mill and overpaid.
2. The more value that you can add the more revenue you will get also the more risk you take on. Value added activities could be sorting, cutting, drying, delivering, and finishing. We found that it is truly worth the investment to count each stack and mark each bundle with type, board feet, and location. If you don’t then you are setting yourself up for shrink issues, revenue loss, disputes, etc. It is imperative, as basic as it seems, to define the terms of the sale.
3. Species would seem to be important to prospective buyers, but it seemed like each broker and potential buyer claimed the wood was a different species that what it was or what another expert said. Also, the species rarely yielded a higher price for us. More important than species, dimensions were what brought a higher price. The longer and wider the material, the more demand we found for our product at always at a higher price.
4. The uses of our material varied. We sold to buyers and brokers that worked in flooring, cabinetry, home improvement and furniture. If the wood has defects, such as worm holes or bolt holes, it still has value (often more value).
5. Screen prospective buyers and brokers diligently. It was usually unproductive to meet buyers on site unless they are serious, established, and broker material as a full time occupation. It is important to get aligned with a broker that he works for your. Brokers may bring in multiple parties to buy your material. There also may be a broker for the buyer and a broker for the seller.
6. The intranet is a good place to start to generate interest in your material. 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 that you reclaimed (see “Our Bourbon Barn”).
Operations – 9 tips
1. Count the board feet of your material it after it is stacked, so that you know if there is shrinkage and show the buyer that you are organized. It helps to put a placard on each stack identifying the quantity, type, etc.
2. Train your crew on the types of species so they do not mix oak in with poplar or pine. A knife cut to show grain, a simple map board, or a scale can indicate the different grades and species of wood.
3. Make sure that there is space for flat bed semi trucks can be easily loaded and maneuvered.
4. Safety and security: make sure that you are diligent in the way that you secure the wood and equipment. Unfortunately, we encountered multiple thefts or material and tools. Make sure that the project has safety gear, processes, and training.
5. Capital equipment: we should have purchased a long fork lift. If you make the capital investment you can sell it once the project is over. It is an opportunity to reduce labor costs.
6. Organize before you take down the barn. We should have planned better on where we would put the stacks of wood.
7. Don’t work your crew in poor conditions. W spent hundreds of hours working our crew in muddy, wet conditions where the productivity was bad.
8. Make sure you have licenses, insurance, permits and cash. Having insurance for you crew and having the funds to pay the crew is important. Several of our crew members to include one of the principles stepped on nails.
9. Take plenty of photos of all phases of the project, even before the project. Have samples ready to ship.
Summary
My partner says that he would never tear down another barn. I disagree. If I got a really good deal I think that the lessons we learned would make the next project so much more profitable and satisfying.
Our Bourbon Barn: A Rich Kentucky History from its Owners and Descendants
Mr. Wertheimer, from Little Rock, had planned to get into the Restaurant business. He met the Ripey’s at a party, and they got into the Liquor business together. Mr. Wertheimer became the co-owner of the Hoffman Distillery Company with the Ripey Family (of Lawrenceburg, KY) in the 1940s (shortly before WWII). Mr. Wertheimer’s grandson, Edward, was born in 1933 said that the distillery and warehouse was erected 50-65 years before he was born, dating the barn back to the 1880s. Our barrel barn was the oldest warehouse on the distillery property. There were a total three warehouses at one time. The other two were erected after his grandfather got co-ownership. Edward spent much of his youth having fun 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 bourbon was labeled under Old Rip Van Winkle. Julian (of Louisville) sold to the owner (in 2000) we purchased it from in 2007. Sadly, much of this history is lost (not recorded), which is one the author’s purposes of the article.
Prior to WWII, the bourbon barrels were floated down the creek, which feeds the Salt River, which connects the bourbon distillery to its original warehouse. Barrel handlers manually lifted the barrels from the creek and placed into the warehouse. The barrels were full and waterproof. After trucks were common place in this region of Kentucky, the barrels were no longer floated down the river. Another interesting fact was that there is a shed across the road where a government gauger lived. The shed still exists. Every barrel was taxed and had to be stamped by the government employee.