Financial analysis principles and applications for private forest lands

Abstract

There are many reasons for owning forestland. Some are financial, such as generating income from timber harvest or a real estate sale after long-term investment. Others are not financial, such as aesthetics, recreation, or wildlife habitat. Whatever your ownership objectives may be, even if they are not primarily financially motivated, understanding basic financial principles as they apply to forestry will help you make informed decisions for sustainable management of your forest. A financially healthy forest is one in which costs and revenues are carefully planned for, minimizing financial burdens to landowners and providing opportunities for supplemental income that can offset the costs of management, be reinvested in the land to support stewardship activities, be invested in the stewardship of additional acreage, or be used to meet other family needs. Forests need to be managed over long time horizons because there may be several decades between harvests. Depending on rotation length and ownership turnover, some forest owners may only harvest once in their lifetime. A little bit of financial planning can make the difference between a successful harvest that meets multiple objectives or a poorly timed harvest that leads to needless loss for the landowner. The purpose of this manual is to introduce the basic principles of forest finance and provide examples of how these principles might be applied to the management of your property. Some advanced concepts are presented later in the manual in case you wish to go deeper into the subject matter.