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Opening a tree farm, whether to produce sustainable lumber, small trees for selling, or Christmas trees requires specific expenses. Calculate these to determine your startup costs and your needs for fundraising through debt or equity investment.
Land
Purchasing land for your tree farm will be one of the largest initial costs, as you may need upwards of hundreds of acres of land. Not only will the land itself be a significant cost, but the cost of brokers, legal fees, land appraisal, and preparation of the land for planting should be included. While a mortgage may be available to spread the cost over time, a significant down payment on the land will probably be necessary.
Buildings
The need for facilities to store and process the trees you cut will depend on the type of wood and fiber you will produce, and additional services you may offer at your tree farm, such as those to support recreation facilities, water quality projects, and wildlife habitat projects. If your tree farm’s goal is to sell Christmas trees or other trees directly to consumers, then you may need facilities on the property to make them more comfortable, or at least a stand of some sort.
Equipment
Machinery and tools needed to cut and process lumber will be another large expense. Buy equipment based on your capacity, but recognize that if you will not be able to start producing for some time, that this expense can perhaps be put off, saving interest expense in the long-run.
Cash Reserves
Cash reserves should cover the operating expenses of your company and the shortfall between your revenues and your costs until the company becomes cash flow positive. To know that you have enough cash reserves within your request for funding, you’ll need to create a cash flow worksheet and adjust the cash reserves amount until your cash balance shows that it will remain positive at all times and keep a cushion of at least thousands of dollars.
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