Start a lumber yard by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your lumber yard. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a lumber yard?
This project requires a sizable upfront investment. You will need to purchase or lease a warehouse/store situated on at least an acre of land, although more space will permit you to stock a greater variety of lumber. Heavy-duty equipment needed will include forklifts, commercially sized saws, storage racks, pallet jacks and a complete retail store setup. There are also the initial orders to fill your shelves with lumber, hardware, and assorted supplies. If you offer delivery services, vans and trucks will also be part of the initial investment. Start-up will require capital from 500,000 to a million dollars.
What are the ongoing expenses for a lumber yard?
Your largest regular expenses will be payroll and maintaining inventory. Building maintenance, licensing, safety inspections, and marketing are other costs associated with doing business. You'll need to keep your vehicles maintained and safe. Business insurance should also be kept updated.
Who is the target market?
Busy general contractors will be the meat and potatoes of your business, buying large quantities of materials from the yard on a consistent basis. You may offer them a wholesale discount price for their continued business. Homeowners and property managers will provide the more consistent business that helps to attract more customers, but they will not be spending as much as the contractors.
How does a lumber yard make money?
The more lumber you sell, the more money your business will bring in. For a lumber yard, numbers and volume will drive the bottom line. If you stock a greater variety of products, you will build larger sales as contractors use you as a one-stop shop for all their building supply needs.
How much can you charge customers?
A single nail can be sold for just a few pennies, while selling enough lumber to build a house will cost thousands. Your retail manager will constantly compare prices among your competition to ensure you are not pricing yourself out of business.
How much profit can a lumber yard make?
You can expect to see a profit margin for much of your lumber stock in the 15 to 20% range. Hardware and accessories have a much higher margin and require less manpower to stock. A small lumber yard can see a net profit of $50,000 to $100,000 while a large yard in a busy area can see a million dollar annual profit.
How can you make your business more profitable?
Careful management of your inventory will help to raise your profit margin. If a product does not sell and spends time taking up space on the shelf, remove it from your regular inventory. Make sure you don't run out of popular products during the busy building seasons, and add new products on a regular basis to keep your customers interested and involved.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your lumber yard is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a lumber yard. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
Certificate of Occupancy
A lumber yard is generally run out of a large indoor or outdoor space. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a lumber yard.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your lumber yard will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a lumber yard
Your reputation for providing quality products, punctual deliveries, and reasonable prices will do the most for building your business. Local homeowners enjoy seeing ads on television and in their mail box with discounts, coupons, and ads promoting seasonal products. Don't lose sight of the fact that you will sell a truckload of lumber to a contractor and a few pieces to the homeowner. With that in mind, a sales force that personally visits large construction sites and handles large orders will do much of your regular promotion for your lumber yard business.
How to keep customers coming back
For a grand opening, you will need to create a massive promotional presence in the neighborhood taking advantage of radio, television, print, social media, and local appearances. Billboards are a cost effective option for announcing your lumber yard's arrival. Offering steep discounts for a short time on common lumber sizes and limited products helps to generate curiosity. Remember that standing behind excellent quality and service will keep them coming back.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Lumber Yard In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
An individual with solid business knowledge and skills will do well managing a lumber yard business. Knowledge and experience of building materials, procedures, and operations will allow you to anticipate the needs of your target customer base.
What happens during a typical day at a lumber yard?
- Placing orders to keep all varieties/sizes and accessories for lumber stock on hand
- Filling orders placed by customers
- Assisting customers in selecting the right materials for their projects
- Taking orders over the phone for clients
- Delivering orders to large job sites as scheduled
- Answering questions on practical applications of your different available materials
- Maintaining and training staff to work in the lumber yard
- Maintaining a safe working environment/ensure inspections are completed of lifting and cutting equipment per OSHA standards
- Balancing your books
- Completing all payroll responsibilities
- Learning about new products
- Maintaining active marketing campaign to attract new customers and clients
What are some skills and experiences that will help you build a successful lumber yard?
- Knowledge of popular building materials, sizes, accessories, and their application
- Solid understanding of business management
- Good personal skills
- Ability to establish positive relationships with contractors and DIYers
- Good ability to geographically dissect demographics to be able to respond to changes in the local market
- Knowledge of OSHA standards to provide safe work environment and training for your staff
- Basic knowledge of construction techniques--although not necessarily required
What is the growth potential for a lumber yard?
Communities that are actively expanding offer the greatest opportunity for a new lumber yard business. This is one industry where starting small is the short line to failure. Once your yard is well-established with contractors stating that they wished you were located closer to their sites is an indication that you would profit by expanding to multiple locations. If you are looking at a small store front in an urban setting, a hardware store might work better as lumber inventory requires massive amounts of cubic footage for storage and sales.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a lumber yard?
Choose your location wisely by completing an in-depth survey of local construction, average household income, and other competition in the area. Establish a relationship with local lumber mills to determine what products you might be able to offer to your customers that cannot be found at other yards. This might include rare lumber, custom millwork, or flooring. Work some home shows in order to kick start your relationships with a variety of contractors who might need to use your yard on a regular basis. Personal interactions will be far more beneficial than ads on the local media.
How and when to build a team
As soon as your funding is in place, you'll need to start building your team. You will need a person responsible for preparing the physical lumber yard, one for maintaining inventory, another for hiring and training staff, and at least a fourth to begin your marketing campaign. On opening day, you will have a staff between 30 and 100 people ready to service your neighborhood.