Where do I draw the line?

[sb47]

I have been selling firewood on the side for a few years now and I’m starting to wonder where I draw the line when it comes to a side business or a full fledged operation.

I started out selling just a few cords a year but I sell quite a bit more now.
I try to keep as much wood on my lot next door because a lot of it is seasoning and is not ready for sales. With around 40 cords stacked up in cords it is starting to look like a big operation. I would like to double my stock but I don’t want to draw too much attention until I decide to become a business or not.

If it was a business I could write off all my expenses, pay taxes and all the other stuff that goes with a business. My expenses are fairly low because almost all my wood comes from tree companies that bring it to me. Most of my expense is cutting it up and running it through the splitter.

Taking it to a business level would be a lot more work with time and expense and may or may not be worth the effort.

Where do I draw the line?


Please give me your thoughts.

Dennis

 

[D&B Mack]

Do you want to make it a full time business? Or, just an "official" side business which is what I did. I think there is two different answers there. If u are going to do as a side business, u can write things off, but you also need to claim your income as well. Where as right now I would bet u r not claiming that income. So you need to make sure u r going to make enough after taxes paid.

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[avalancher]

No matter what I say from here on, I am not advocating breaking the law. That is a decision you have to make for yourself.


But i will say one thing, the second you go into a "business" for firewood, the name of the game is volume, and spell that with a capital V. Without a lot of volume, you may end up losing more than you gain.

Been in the business myself officially for seven years, and mainly an off shoot of tree service work. It gives me a chance to collect twice on the pile of wood, once when removing it, and again when selling it as firewood. But without some very careful planning,book keeping, and a very careful eye on expenses, there really isnt that much money to be made in selling firewood if you do everything by the book.

First off, you got to look at taxes. Income tax on what you take in, sales tax has be either collected or absorbed by you, and often if you charge the customer the sales tax you just priced yourself above the weekend warrior making some beer money. Your only other option is to absorb the cost yourself, and it can add up quick.

Next biggest thing is a license. Here if are a business, you are subjected to heavier vehicle tag fees, on top of licensing for the business and of coarse a business insurance policy. That right there takes a very big chunk. Here a cord of wood runs about $180. Since you have to remain competitive, you pay the ten percent sales tax. Now you got $150 in your pocket. Subtract a $1700 a year insurance policy, $175 for a license, and tags on the vehicles around $225, you got to sell a lot of wood to just break even. And that is not counting all the other expenses of vehicle maintenence, repairs, saws, chains, bar oil, fuel, etc. It adds up quick.

I ran completely legit my first year, and after running the numbers at the end of the year, I put only $78 a cord in my pocket. not enough to justify all the hard work. The second year, I got smart (or dumb, depending on how you look at it) and ran sales two ways. Regular accounts that paid by check, or wanted a receipt, got entered into the books, and paid taxes on the amount. Cash sales, mostly in my pocket, and less than half declared.

By now I have figured out a healthy balance between income and expenses, and declare enough income to justify the expenses without raising an eye brow with the tax man. But doing the math, I figured out this much. If I wanted to run completly legit, I would need six guys working for me part time, pay them less than $10 an hour to split and deliver firewood, and after covering payroll, equipment, license, insurance, etc, I would end up exactly the same as where I am now and have the added book work of payroll.

I dont run a high volume sales deal. My sales last year, my poorest thanks to the warm winter, was only $8,000.Only $5000 actually went into my pocket. And because sales were slow, I declared less than 1/3 of that as income.

Running legit has advantages, but mostly disadvantages. Your best bet unless you got lots of customers, lots of acreage for drying wood, tons of equipment, and a desire to really go big time, stick with a smaller scale and stick as much of it as you can into your pocket as strictly cash sales. The tax man just takes away any incentive to bust your hump otherwise.

 

[johnzski]

I couldn't agree with avalancher more; if you run any small business strictly legit and by the book you will not be in business for long . Trust us on that one !

 

[mtfallsmikey]

No matter what I say from here on, I am not advocating breaking the law. That is a decision you have to make for yourself.


But i will say one thing, the second you go into a "business" for firewood, the name of the game is volume, and spell that with a capital V. Without a lot of volume, you may end up losing more than you gain.

Been in the business myself officially for seven years, and mainly an off shoot of tree service work. It gives me a chance to collect twice on the pile of wood, once when removing it, and again when selling it as firewood. But without some very careful planning,book keeping, and a very careful eye on expenses, there really isnt that much money to be made in selling firewood if you do everything by the book.

First off, you got to look at taxes. Income tax on what you take in, sales tax has be either collected or absorbed by you, and often if you charge the customer the sales tax you just priced yourself above the weekend warrior making some beer money. Your only other option is to absorb the cost yourself, and it can add up quick.

Next biggest thing is a license. Here if are a business, you are subjected to heavier vehicle tag fees, on top of licensing for the business and of coarse a business insurance policy. That right there takes a very big chunk. Here a cord of wood runs about $180. Since you have to remain competitive, you pay the ten percent sales tax. Now you got $150 in your pocket. Subtract a $1700 a year insurance policy, $175 for a license, and tags on the vehicles around $225, you got to sell a lot of wood to just break even. And that is not counting all the other expenses of vehicle maintenence, repairs, saws, chains, bar oil, fuel, etc. It adds up quick.

I ran completely legit my first year, and after running the numbers at the end of the year, I put only $78 a cord in my pocket. not enough to justify all the hard work. The second year, I got smart (or dumb, depending on how you look at it) and ran sales two ways. Regular accounts that paid by check, or wanted a receipt, got entered into the books, and paid taxes on the amount. Cash sales, mostly in my pocket, and less than half declared.

By now I have figured out a healthy balance between income and expenses, and declare enough income to justify the expenses without raising an eye brow with the tax man. But doing the math, I figured out this much. If I wanted to run completly legit, I would need six guys working for me part time, pay them less than $10 an hour to split and deliver firewood, and after covering payroll, equipment, license, insurance, etc, I would end up exactly the same as where I am now and have the added book work of payroll.

I dont run a high volume sales deal. My sales last year, my poorest thanks to the warm winter, was only $8,000.Only $5000 actually went into my pocket. And because sales were slow, I declared less than 1/3 of that as income.

Running legit has advantages, but mostly disadvantages. Your best bet unless you got lots of customers, lots of acreage for drying wood, tons of equipment, and a desire to really go big time, stick with a smaller scale and stick as much of it as you can into your pocket as strictly cash sales. The tax man just takes away any incentive to bust your hump otherwise.

I think you have answered your own question...

I had my own biz for a lot of yrs., nice to control your own destiny, but horrible to see govt. determine it now.

 

[D&B Mack]

No sales tax here in PA on bulk firewood.

But avalancher makes good points.:thumbup:

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[jrider]

I have wrestled with this question for a few years myself and if you have to ask it in here, you already know your answer....its keep it a side thing.

I do 60-70 cords a year mostly by myself, save the occasional hiring of a local teen to help me out some days. I (and probably you too) would have to have a serious upgrade of equipment just to handle the volume you would need to add to make it profitable to go larger. Do you have the money laying around for that and if you do, do you want to put it back into more equipment? Also, being a side thing, most days when it starts to feel like a job I turn off whatever I am running and go home and play with the kids. If its too hot like today (98 degrees) I may work only a few hours in the morning and go swimming the rest of the day. If you have to push extra volume, you now start to lose more and more of the flexibility that comes with a side gig. Its good money as a side thing and I would just leave it at that.

 

[Rockland Farm]

I have to agree with these guys . The next step is too big of an investment in equipment for me . In Ct. as long as you sell 25 cord or less you are not considered a commercial enterprise . I think that is as much as I want to do . I can work at it when I feel like it and do it with the gear I already own .Of course everybody has different circumstances . If you already have some of the bigger equipment you will need and a good solid supply of wood then maybe you can make a go of it . I know of one bigger outfit not far from me that had a hard time getting wood that was suitable for his processor one year because no one was clearing building lots or logging . That big fancy expensive firewood processor wasn't making him any money with nothing to feed it . I always sell every stick of firewood I have and could sell more . So I think about going bigger every now and then also . But I think staying under the radar is the best for me . Good luck with whatever you decide .

 

[ponyexpress976]

I agree with everything said so far. The only thing I might add is that if you want to get bigger and you have neighbors that burn...consider a deep discount for them. Grease the wheels a bit and keep them from complaining and you'll probably sell for years and the tax man will be none the wiser.

 

[Steve2910]

There's no money in firewood beyond pocket change, unless your doing it on a huge scale. I figure I make about $20/ hr on the wood I sell. If I really put pencil to paper & counted all the "hidden extra expenses", I'm sure the hourly rate would be less. That said, I enjoy it, it's good exercise, & I spend the $$ it generates on something I wouldn't buy otherwise. A guy up the road does bundles which retail for $5/ .75 cu.ft. That's over $800/ cord, but who knows what his margin is, even @ that.

 

[cantoo]

My wife and I have a legit lawn cutting business. She does the day to day work and I buy and keep equipment running, I have a full time job besides this. We've been legit for 10 or so years now. Everytime we are thinking we are getting ahead we get kicked in the head instead. We claim all income and all expenses. We also buy and sell equipment and claim expenses and income when we sell it. We have commercial insurance, liability insurance, commercial phone costs, advertising etc. It's is bleeding us dry and I haven't even considered taking my trucks and trailers to commercial level yet. I do almost all the maintenance and don't allow anything for my time so that adds up too. We were licenced to apply pesticides until the government decided to make commercail pesticide application illegal. We already had all the equipment (now worthless) the licences and insurance (20 % of billing) when they stopped it.
This year we were hoping to get back into profits, in comes the HST aduit, we owe again. Right now we are sitting here waiting for a response back from Income tax audit that was done 2 weeks ago, they are hinting that they want $30,000.00 more. It's nice to write off expenses but I'm considering shutting the business down and doing cash sales until they catch us and then I'll just pay a fine.
PS, there are very few legit lawn businesses here.

 

[ponyexpress976]

My wife and I have a legit lawn cutting business. She does the day to day work and I buy and keep equipment running, I have a full time job besides this. We've been legit for 10 or so years now. Everytime we are thinking we are getting ahead we get kicked in the head instead. We claim all income and all expenses. We also buy and sell equipment and claim expenses and income when we sell it. We have commercial insurance, liability insurance, commercial phone costs, advertising etc. It's is bleeding us dry and I haven't even considered taking my trucks and trailers to commercial level yet. I do almost all the maintenance and don't allow anything for my time so that adds up too. We were licenced to apply pesticides until the government decided to make commercail pesticide application illegal. We already had all the equipment (now worthless) the licences and insurance (20 % of billing) when they stopped it.
This year we were hoping to get back into profits, in comes the HST aduit, we owe again. Right now we are sitting here waiting for a response back from Income tax audit that was done 2 weeks ago, they are hinting that they want $30,000.00 more. It's nice to write off expenses but I'm considering shutting the business down and doing cash sales until they catch us and then I'll just pay a fine.
PS, there are very few legit lawn businesses here.

This scenario...while not as extreme is precisely why I struggled with going legit for almost 6 years....got to a point where I had to. Funny thing is,I'm doing more work and clearing way less. As far as I'm concerned, anyone willing to give me cash (or anything of real value for that matter) doesn't exist and the transaction never happened. Gotta do something to keep the liberal vultures out of my wallet.

 

[cantoo]

It seems like they (government, laws) are trying to get rid of small businesses or at least trying to stop them from getting legit. On another thread someone who shall remain nameless said "we" are the government, yeah well I sure as hell didn't vote all these new laws and taxes in. It's like having a silent partner and at the end of every year they rob you blind and they don't do any work.
Good news today though, due to the economy and several other things my property assessment went down so this year my taxes will be less. This is supposed to be good news?

 

[stihly dan]

It seems like they (government, laws) are trying to get rid of small businesses or at least trying to stop them from getting legit. On another thread someone who shall remain nameless said "we" are the government, yeah well I sure as hell didn't vote all these new laws and taxes in. It's like having a silent partner and at the end of every year they rob you blind and they don't do any work.
Good news today though, due to the economy and several other things my property assessment went down so this year my taxes will be less. This is supposed to be good news?[/QUOTE

Until they raise them in the fall, and its like the value never changed.

 

[waldershrek]

Good news today though, due to the economy and several other things my property assessment went down so this year my taxes will be less.

Better mark that on your calendar.....that never happens. Prolly next year they will just double to make up for it.

 

[mtfallsmikey]

So if a person wanted to get into the firewood biz in a big way, what kind of capital outlay would it take to get some trucks, a processor, etc...$100K, $200K, more?

 

[D&B Mack]

So if a person wanted to get into the firewood biz in a big way, what kind of capital outlay would it take to get some trucks, a processor, etc...$100K, $200K, more?

When I sat and figured it out, it would have taken about $250k to start-up a bulk firewood business full time. You have to float a lot of initial dollars to get inventory up to the needs for the current year. You could probably do it with less if you stockpiled inventory before hand "off-the-books".

I started my bundle firewood business as a "hobby" first and grew it. It took me about $35k to make the jump to an actual business. Had I done it all at one time, I would say it would have cost around 60-75k.

 

[owbguy]

there really isnt that much money to be made in selling firewood if you do everything by the book.

true words spoken here. Fact: a lot of work, not a lot of money

 

[imagineero]

I agree with everything said here already... I'd just add that if it's all a cash business,be very careful about who you tell (nobody) and about how you hire people and what you get them to do. You may think it's pretty harmless hiring a high school kid up the road for cash to do a bit of work, but if anything goes wrong you will wear it big time. I'm not saying don't do it, just saying be careful of who you hire, and what you ask them to do.

A buddy who works in the tree industry does firewood on the side. He has a small truck and works as a contract groundie. He turns up and grounds, gets paid for the day, and paid a small amount to take away logs by contractors who maybe don't have a chipper big enough to chip the log without ripping it. Best part is that he gets paid to work, while the other workers give him a hand to buck it to firewood length and load it in his truck by hand. He takes it home, splits it up, seasons and sells... adds a little pocket money to his income.

He hired a couple backpackers to give him a hand splitting last year. He has a modern hydraulic splitter, slow and safe with all the modern safety features (2 hands to operate ram) and guards. He showed the guys how to operate the machine and went off to do some other work. The guys got a bit careless, and didn't operate it as shown. One guy loaded and one guy operated the controls. The loading guy kept his hands on the block while it was being split to save time. Ended up having his hand in the wrong place eventually and chopped off the tips of a couple fingers.

Without insurance, my buddy who has just bought his first house, is married with kids and financially struggling may lose it all. It was a tragedy about the other guys fingers, but if my buddy loses his house it won't reverse the damage, just increase the tragedy. Needless to say, this has wrecked my buddies life in a lot of ways - stress, sleepless nights, arguments with the wife etc. I can only imagine it's much the same for the guy who lost his fingers.

I'm not saying go legit, just saying that if you don't you need to be extra careful about hired help. This isn't a problem if you do it all yourself.

Shaun

 

[Preston]

Every business I've ever tried my hand at I did it buy the government rules and regs. Never again will I go that way. But it took me too long to learn that. Now the fire's gone to try it again. All you'll ever do is work for the government, which is what they want. I know folks and was associated with some that were in business and to some degree paid the man. But over all they pretty much kept to themselves. Otherwise they would not have made it. Just remember, very large businesses do the cheating legally with government help. The little man does the same thing and it's not legal. All according to who you know.

Stay a side job and keep quite about what you do. Period.