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“People kept telling me to buy green board and sell it dried. They said: there is a margin of one thousand three hundred and fifty a cube in that, and on drying you take three hundred and sixty. I did the sums and understood they were offering me seven times the money and the end of sleeping at night.”
Liubomyr Hrynchuk runs a timber drying yard outside Stryi. Four kilns, oak and pine, clients from the local joinery shops and two furniture works. Sixteen years in timber, the last six as the owner. His own equipment, a sawdust-fired boiler, a queue for kiln space standing since spring. And the most important decision in this business is not about drying at all.
Four kilns of sixty cubic metres
The yard has four kilns and each takes 60 m³. One full charge is 240 m³.
The average drying cycle is ten days. Oak takes longer, pine less, but averaged over a year it comes to exactly that. Across 330 working days, 33 cycles.
So the yearly capacity of the yard is 7 920 m³ of green board.
Liubomyr spent sixteen years going from kiln operator to owner, and for nearly all of that time he looked at drying as a technology. How many degrees, how many days, what moisture at the outlet, how much reject. Whose boards were standing in the kiln he treated as a detail of organising the work, not as a separate business.
The kiln does not know whose timber it holds
Technically there is no difference whose boards are in the kiln. The same gas, the same ventilation, the same operator, the same cycle. The cost of drying one cube does not change according to who bought that cube.
The economics change completely. And that is precisely what Liubomyr underrated for six years.
Stryi is a logical place for this business. Carpathian timber is next door, there is a sawmill in every second village, and drying kilns are scarce — they are expensive and they need gas or a solid-fuel boiler. Liubomyr built his boiler to run on sawdust from his own waste, and that is one reason his cost of drying is lower than a town yard's.
What tolling actually is
The client brings his own board, pays for the drying and takes the dried timber away. The wood never becomes the yard's property.
- price of drying: 960 ₴ per m³ loaded
- gas and electricity: 420 ₴ per m³
- labour and maintenance: 180 ₴ per m³
- contribution: 360 ₴ per m³
Tolling needs no capital
In this model the yard buys nothing. No purchasing, no stores, no risk that the price of dried board falls while it is still in the kiln. There is equipment, gas and people, and that is all.
The money arrives when the drying is done, sometimes even in advance. Working capital here equals zero, and that is not a figure of speech.
Drying the whole yearly volume costs 4 752 000 ₴. That is gas, electricity, operators and routine maintenance of the kilns, and it does not depend on which model the yard works under.
A year on other people's timber
| Line | Amount, ₴ | Comment |
|---|---|---|
| Turnover | 7 603 200 | 7 920 m³ × 960 ₴ |
| Cost of drying | 4 752 000 | 7 920 m³ × 600 ₴ |
| Contribution | 2 851 200 | 360 ₴ out of every cube |
| Fixed costs | 1 980 000 | rent, 5 people, boiler, security |
| Net profit | 871 200 | 11.5% of turnover |
Eight hundred and seventy-one thousand a year without a single hryvnia tied up in goods. For equipment that has already paid for itself, that is a calm business with a queue of clients.
And that is exactly how Liubomyr worked for the first four years.
Same kiln, different business
“The first person to say it to me was one of my own clients. He buys green at eight four, I dry it for him at nine hundred and sixty, and he sells dried at twelve six. And he tells me straight: Liubomyr, you are the poorest man in this chain, and without you none of it works.”
The sum is simple. Green board costs 8 400 ₴ per m³. Dried sells at 12 600 ₴.
A difference of 4 200 ₴ a cube, and the yard takes 960 ₴ out of it.
The remaining 3 240 ₴ goes to whoever took on the buying, the storage and the selling. The yard is left with 22.9% of the gap, although without the yard the gap does not exist at all.
What your own timber gives
Buy green, dry it, sell it dried — the same work, you would think, with trading on top.
Liubomyr has tried twice to put the price of drying up, and twice he ran into the same wall. His client can always buy a kiln of his own: while drying costs less than owning the equipment, it sells, and the moment it costs more, the client puts his money into his own. The ceiling on the price here is set by the cost of the alternative, not by appetite.
Shrinkage and planing take a fifth
A cube of green board does not give a cube of dried, it gives 0.8. The moisture leaves, the board settles in thickness, some of it turns into reject and some more disappears in the planing. So for one cube of dried you have to buy 1.25 cubes of green.
The cost of a cube of dried is made of two parts: 10 500 ₴ of timber and 750 ₴ of drying. Together, 11 250 ₴.
| One m³ of dried board | ₴ |
|---|---|
| Green board, 1.25 m³ × 8 400 ₴ | 10 500 |
| Drying, 1.25 m³ × 600 ₴ | 750 |
| Cost | 11 250 |
| Selling price | 12 600 |
| Margin | 1 350 |
A margin of 1 350 ₴ against 360 ₴ on tolling. A difference of 3.75 times on every cube, and the capacity counts differently too: 7 920 m³ of green give 6 336 m³ of dried.
The turnover then looks like another business entirely: 79 833 600 ₴ against 7 603 200 ₴. That is not an achievement but a feature of the model — a trader's turnover includes the cost of the timber he bought. Comparing turnovers here is pointless. What has to be compared is contribution.
Seven and a half times
The contribution on your own timber is 8 553 600 ₴. Take off the same fixed 1 980 000 ₴ and the net comes to 6 573 600 ₴.
Against 871 200 ₴ on tolling that is 7.55 times more.
The same kiln, the same gas, the same operator — and seven and a half times the profit.
That is the calculation Liubomyr was shown. It is correct, and there is neither an error nor an exaggeration in it.
How much money it takes
There is simply one line missing from it.
To sell dried board you first have to buy it green. And not once but constantly: while one batch dries, the second lies in the yard and the third waits for a buyer in the finished stores.
- in the kilns: 240 m³ green × 8 400 ₴ = 2 016 000 ₴
- dried in store, 45 days of selling: 864 m³ × 11 250 ₴ = 9 720 000 ₴
- green in the yard, 20 days: 480 m³ × 8 400 ₴ = 4 032 000 ₴
- total tied up: 15 768 000 ₴
The finished stores are the biggest part of that sum. Dried board does not sell on the day it comes out: a buyer drives over, picks through it, takes a batch for a particular order. Forty-five days from the kiln door to the payment is a normal term, not a delay.
Return on capital matters more than profit
Six million five hundred and seventy-three thousand on fifteen million seven hundred and sixty-eight is 41.7% a year. Not bad, but now it is clear that comparing 6 573 600 ₴ with 871 200 ₴ was pointless. One of those earnings figures stands on zero capital, the other on a sum 2.4 times the size of the earnings themselves.
The finished stores here are 61.6% of all the money tied up. Not the kilns, not the yard full of green board, but exactly that dried timber already out of the kiln and waiting for a buyer. There is more of it than anything else, and it is the dearest per cube.
“I went to the bank for those fifteen million. The bank looked at my yard and gave me three. The rest I had to either collect out of profit over four years, or take a partner, or work on a smaller volume.”
“The bank told me something then that I did not understand at first. They say: we lend against your equipment, not against your stock of board, because board is goods and not an asset. Two years later I understood what they meant.”
The margin inside the price
There is a second thing that calculation left out as well.
A margin of 1 350 ₴ looks solid in hryvnias. As a share of the selling price it is 10.7%, and it is that view that matters once the price starts moving.
A thin margin breaks on a small price move
The cost of a cube of dried is 11 250 ₴, and it is locked in at the moment the green board is bought. The selling price, meanwhile, lives its own life for three months while the batch dries and waits for a buyer.
Between those two numbers there is a gap of 1 350 ₴ and nothing more.
Ten percent on dried board is neither a catastrophe nor a rarity. It is an ordinary market move, the kind that happens when furniture works squeeze their buying for a quarter, or when somebody big comes out with a batch into the same region.
What happens if the price falls
Say dried board drops 10%: from 12 600 ₴ to 11 340 ₴.
The cost stays at 11 250 ₴. The margin falls from 1 350 ₴ to 90 ₴ a cube.
| Model | Dried at 12 600 ₴ | Dried at 11 340 ₴ |
|---|---|---|
| Tolling | 871 200 | 871 200 |
| Own timber | 6 573 600 | −1 409 760 |
| Capital tied up | 15 768 000 | 15 768 000 |
Minus ten percent on the price turns 6 573 600 ₴ of profit into a loss of 1 409 760 ₴.
The threshold of the fall
The exact line is easy to work out. Fixed costs of 1 980 000 ₴ across 6 336 m³ of dried demand a margin of 312.5 ₴ a cube.
So the margin can fall from 1 350 ₴ to 312.5 ₴, and that means a price drop of 8.23%.
Eight and a quarter percent. The price of dried oak has moved further than that in both directions twice in the last three years.
The 8.23% threshold is unpleasant not in itself but in combination with the term. About three months pass between buying green and being paid for dried, and nobody fixes the outlet price in advance. So the owner carries the price risk for three months on a gap of 8.23%.
Why the till does not show it
The cash report shows the money that came in and went out. It does not show which model earned it.
- income from drying other people's timber and income from selling dried board sit on one line
- buying green board looks like a cost rather than money put into the cycle
- dried board in store does not exist in the cash report at all
- gas and labour are not split between other people's cubes and your own
To see the difference between 41.7% of return and zero capital, all four lines have to be separated by model. No bookkeeping package will do that, because to it this is the same income from the same activity.
What was tried before
“Two years ago I tried. Bought a batch for one and a half million, dried it, and it stood in the store for five months, because that was exactly when the furniture works stopped. Sold it at almost cost and never went near the idea again.”
After that, Liubomyr decided his own timber was not for him. The conclusion was right about the outcome and wrong about the cause: that batch stuck not because of the model but because of its size — he put everything into one purchase.
He could not see a third option.
The mistake was not in the model but in Liubomyr treating the choice as binary: either other people's timber or his own. The third option needs neither a full switch nor fifteen million — it needs only working out where the line runs.
The mixed model
The question that settles everything sounds unexpectedly simple. How many cubes of other people's timber can the yard's fixed costs be trusted to?
That figure is the main one in this whole story. It is not about profit and not about margin — it is about how much of the capacity has to be given to riskless income so that the rest can be risked calmly.
The fixed costs can be paid by other people's timber
Fixed costs are 1 980 000 ₴. The contribution of tolling is 360 ₴ a cube. Divide one by the other: 5 500 m³.
That is 69.4% of the kiln capacity. The remaining 30.6% is free.
How many cubic metres carry the fixed costs
In this model 5 500 m³ of other people's timber cover all the fixed costs exactly. They bring not one hryvnia of profit — and not one hryvnia of loss either.
The rest of the capacity — 2 420 m³ green, that is 1 936 m³ dried — works on the yard's own timber. The contribution is 1 350 ₴ a cube, and all of it becomes net profit: 2 613 600 ₴.
- tolling, 5 500 m³: covers the fixed 1 980 000 ₴ exactly
- own timber, 1 936 m³ dried: net profit 2 613 600 ₴
- capital tied up: 4 818 000 ₴ instead of 15 768 000 ₴
- return on capital: 54.2%
The price risk is left on the profit alone
The return came out higher than in the fully own-timber model: 54.2% against 41.7%. The reason is not magic but the fact that the fixed costs here are paid with somebody else's money, so the owner's capital works on the margin alone.
And here is the main thing. On a 10% price fall the mixed model still gives 174 240 ₴ — little, but in the black. Its threshold is 10.71% instead of 8.23%.
What Liubomyr did
“I did not become a timber trader and I did not stay a drying yard either. Two thirds of my kilns now work on other people's wood, and that is enough that I do not have to sell my own board at whatever price is offered. That „do not have to“ is the whole difference.”
The yard moved to the mixed model over two seasons rather than at once. First Liubomyr worked out how many cubes he trusts the fixed costs to, then he locked that share into year-ahead contracts with his regular clients, and only after that did he start buying green board for the free capacity.
The order of those steps matters more than the idea itself.
The remaining 30.6% of the capacity now works on his own timber, and Liubomyr buys in batches of four hundred cubes instead of one batch for one and a half million. If the market sags, he simply does not buy the next batch — and the kilns do not stand idle, because other people's timber is in them.
The money does not vanish — you simply do not see it
“For sixteen years I thought my question was how much to charge for a cube of drying. My real question was how many cubes to trust the rent, the wages and the boiler to. Those are different questions, and the second one I never once asked myself.”
Nothing changed in Liubomyr's yard: not the equipment, not the cycle, not the cost of drying. Still four kilns, still 33 cycles, gas and labour still the same 600 ₴ a cube. The only thing that changed is that he now knows which part of the kilns pays his fixed costs and which part works for profit.
How to see this at your own kiln
Everything above rests on one cut the cash report does not make: tolling and trading your own boards are two different businesses on the same equipment, with different returns and different risk. While they sit on a single revenue line, the owner sees neither that 5 500 m³ of other people's timber covers all the fixed costs, nor that the margin inside the dried price is only 10.7%. When kiln loading, green purchases and dried sales are counted separately on their own, choosing the model stops being a matter of mood — which is exactly why owners of small and medium businesses use Finmap: to see the financial picture instead of reconstructing it from memory.
Read also
Topic foundation: Management Accounting Explained: What It Is and Why Owners Need It
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Frequently asked questions about timber drying finances
Which pays better: drying other people's timber or buying your own?
It depends on what you measure it with. Tolling gives 871 200 ₴ a year without a single hryvnia of capital; your own timber gives 6 573 600 ₴, but needs 15 768 000 ₴ tied up. What has to be compared is not the profit figures but the return on the capital and the risk.
Why is the profit on your own timber seven times bigger?
Because you take the whole gap between green and dried board instead of a drying fee. The contribution of tolling is 360 ₴ per m³, the margin on your own timber 1 350 ₴ per m³, which is 3.75 times more, and the volume is counted in cubes of dried rather than green.
How do you work out how much money your own timber will tie up?
Add up three stocks: the timber in the kilns, the green board in the yard and the dried board in the finished stores. Here that is 2 016 000 ₴, 4 032 000 ₴ and 9 720 000 ₴ respectively. The biggest part is the finished stores, 61.6% of all the capital, because dried board is both dearer per cube and lies there longer.
How dangerous is the thin margin in trading dried board?
A margin of 1 350 ₴ is 10.7% of the selling price, and it is locked in on the day the green board is bought while the sale happens three months later. A price fall of 8.23% turns the year into a loss, and a fall of 10% gives minus 1 409 760 ₴ instead of 6 573 600 ₴ of profit.
How many cubic metres should carry the fixed costs?
Divide the fixed costs by the contribution of tolling. Here 1 980 000 ₴ over 360 ₴ gives 5 500 m³, which is 69.4% of the kiln capacity. That share brings no profit, but it covers the rent, the wages and the boiler in full.
Why does the mixed model give a higher return on capital?
Because the fixed costs in it are paid with other people's timber, and the owner's capital works on the margin alone. The return comes out at 54.2% against 41.7% in the fully own-timber model, and the money tied up is 4 818 000 ₴ instead of 15 768 000 ₴.
Does the mixed model protect you from a price fall?
Not completely, but substantially. The threshold rises from 8.23% to 10.71%, and at minus ten percent the yard stays in the black by 174 240 ₴. The main thing is something else: the kilns are loaded with other people's timber, so your own board never has to go at whatever price is offered.
Why is none of this difference visible in the cash report?
Because the till shows the movement of money, not the model that earned it. Income from drying other people's timber and income from selling dried board sit on one line, buying green looks like a cost instead of money put into the cycle, and dried board in store does not exist in the cash report at all.
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