As the owner of any for-profit organization, whether it is the
corner store, a car dealership or a logging company, your financial
goals include making a profit. So why is it that so many logging
businesses continue to generate losses or at best, break even?
There are a number of reasons that could explain a bad year
from, "The quality of fibre from the woodlot was
terrible" and "The rate wasn't fairly
negotiated" to "I couldn't get all the wood out of
the bush last year." While those may all be very good
explanations, the fact of the matter is, you lost money and
that's not good.
No matter how you rationalize it, the evidence suggests that for
some logging companies, a lack of proper planning is one issue
causing them to fail at generating a reasonable profit. While most
companies would argue they do perform some level of planning, it is
often not sufficient. Think of this in terms of hockey. The
Canadian Olympic hockey team will head over to Russia this winter
seeking a gold medal. The team will be comprised of the best hockey
players Canada has to offer. However, they will no doubt have a
'game plan'. The talent alone will not win them the gold,
the talent must be managed to ensure success.
So let's talk about that same concept in relation to your
business. First of all, how do you define success? For our hockey
team, it will be winning the gold medal. For you, it might be
defined by many things, but one thing that should always be near
the top of the list is generating a reasonable profit. For most
businesses, a reasonable profit would be defined as receiving
proper reward for the risk taken. For the logging industry, the
risks are high: large capital investment is required, there is
market uncertainty and volatility, there are many factors affecting
your productivity and the work is dangerous. So, a reasonable
profit should be higher, such as 10, 20 or even 30 percent.
Crunching the Numbers
Start the planning process by taking a close look at the total
expenses to cut your block (your 'costs'). This must
include 'All Expenses' and you should convert this to a
cost per unit measure. Here are just a few things to consider:
Analyze your past financial
Walk your cut blocks and take note of
the conditions (hours of work and volume of production are
Assess the machinery needs, and
change your line-up if necessary
Look for options to hedge yourself
against variable expenseslike fuel
Analyze your wood movements and
ensure everything will get delivered to your buyer on time
Link your productivity to profit,
resulting in clear and easily defined production targets for
Build in a buffer for those
Once you develop a good understanding of your costs, the rate
you need to receive becomes obvious. It is the rate that generates
a reasonable profit (total revenue in excess of your costs). Sounds
easy right? So what happens when you need $20 / m3 but the offer is
only $16 / m3? You really have three options:
Review your expenses and ensure you
are operating as efficiently as you can, without jeopardizing the
safety of your crew or appropriate levels of productive
Request a meeting to negotiate a
higher rate and come to the meeting with facts to support your
Do not take the contract.
The first two will take some time and energy, but are easy to
initiate. However, number three is where many contractors struggle,
"If I don't take the contact, my competitor will get
it" or "I just need cash flow to keep paying the
bills". Neither of those are great business reasons to accept
a contract that is not profitable. If you are operating as
efficiently as possible, your competitor likely has the same costs
as you and therefore, if they are willing to deliver work below
cost, let them. They won't be around for long. Taking on a
contract to 'pay the bills' provides a short-term fix but
creates a much larger problem in the future. If the industry cannot
bear the cost of proper returns, you are not required to
Effective business planning can help you achieve greater
success. A good business advisor can help you understand what the
numbers mean and how you can create a solid plan to achieve greater
success over the long haul. Before you start any contract, have a
plan that says you will make a reasonable profit. The logging
industry is loaded with honest hardworking people just like you.
The value that logging contractors provide to the economy is
enormous (2011 Canadian GDP for all forest related industries was
$23.7 billion) and therefore you should demand the appropriate
level of respect and compensation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Law Society of British Columbia’s Cloud Computing Working Group issued its Final Report on Cloud Computing on January 27, 2012, amending an earlier consultation report approved by the "Benchers" on July 15, 2011.
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