Most of my wood comes from a local lumber yard called Waters Edge Woods in Comer. Those guys are great. They deal primarily in flooring boards and some reclaimed. Many of the pieces I use are not straight or clean (knots & blemishes) enough for flooring but they're perfect for me.
Most of the boards come rough-sawn from the lumber yard and need to be planed and cleaned up (thanks Fred!). This machine is so loud, the first time I used it without ear protection my ears rang for over 24 hours.
Once planed and a design is chosen, the boards need to be cut down to the right sizes.
I glue the pieces together using Titebond II. It can get really messy.
Once dried I cut down the sides, round the corners, sand & prepare for cutting.
This is a fun part of the process. I always feel like I'm cutting a loaf of bread. It's important not to cut too thin so they aren't easy to break, and also not too thick so you don't waste wood. I bought a Diablo, thin-kerf blade to reduce saw marks and increase output. Highly recommended!
This part is the most tedious but definitely worthwhile. Each coaster gets sanded using an 80-grit paper on a band sander (thanks Jonathan!) then hand-sanded using 220-grit paper. Wear a breathing mask!
And lastly - coating with Polyurethane. This usually takes about 3 days and 3 or 4 coats. I chose polyurethane over a laquer or varnish because I like the long-term durability. After my first few sets I started sanding in between coats to get rid of bubbles. I wanted to originally keep labor as low as I could (an already laborious process) but my desire for quality ruled out.