Recycling is a practice that has taken on various shapes over the years. One of the earliest recycling practices in the U.S. dates back to the 1600s when a Philadelphia paper mill used old rags and linens to make paper. However, it wasn’t until the late 20th century that curbside recycling pick-ups became standard in the U.S.1
Nowadays, recycling has a huge place in American culture, and recycling businesses have an important role in reducing waste and repurposing materials for a second (or third) use. For instance, new inventions are created using recycled materials, such as paved roads and clothing from recycled plastics.
Launching a recycling business requires more than simply a passion for sustainability. So, how do you start a recycling business? This guide provides a look into the recycling industry and how you can make money starting a recycling business.
Recycling facilities sort, clean, and package purchased or donated recyclable materials to resell as raw materials to manufacturers. Small recycling facilities may handle the sorting of local community waste by hand. In contrast, large recycling facilities may take recycled products from several cities and use conveyor belts and machines such as balers and glass crushers. The sorted, cleaned, and repackaged materials are sold to manufacturers by the pound or ton, and the manufacturers then use the material to create new products.
Recycling companies generate revenue in two main ways:
- Tip fees: Getting paid by municipalities, trash haulers, and generators of recyclables to accept the materials.
- Sale of processed materials: Selling bales of sorted paper, plastic flakes, metal scraps, and glass cullet to buyers.
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In 2023, the US recycling market generated $9.2 billion and is expected to grow.2 This growth is based on the rise of companies and industries focusing on sustainability and reducing waste, so there is a greater opportunity for additional materials to be recycled and resold. Further, an increased interest in recycled materials means the demand for recycled products will increase, and the raw material sale price will increase.
Steps To Start A Recycling Business
Step 1: Write a Business Plan
Especially given the complexity of operations and regulatory requirements in the recycling industry, the first step when starting a recycling business plan is to write a business plan. While there are several reasons why to write one, here are some of the top reasons:
Market research: This research will highlight which recycling streams are in high demand, local policies and regulations governing the industry, and identify potential competitors. This helps you determine the viability of your business and understand the materials you want to recycle (e.g., paper, plastic, glass, metal). Deciding what materials to recycle not only informs the type of equipment and facilities you’ll need but also shapes your entire operational model.
Financial projections: Writing a business plan helps you estimate the startup costs of your recycling business, such as the equipment, facilities, and operating expenses. It also allows you to project the potential revenue and whether this business can be profitable.
Securing funding: A business plan is also often required by lenders and investors and shows the feasibility of your business and understanding of the market.
Related: How to write a business plan
Step 2: Secure Funding
Once you have a solid business plan in place, the next step in starting your recycling business is securing the necessary funding. This can be one of the most difficult steps, but before moving on, you want to make sure all the startup costs can be covered. Let’s look at the common sources of funding for a recycling business.
The first place to look for funding is your own savings to assess how much money you can personally invest in your recycling business. If personal savings don’t cover all the costs, outside funding sources will be necessary.
The best sources, if available, are state and local government grants. Grants are funds that don’t have to be paid back and are sometimes available to launch recycling businesses. Be prepared for a competitive application process.
Banks are a common source of funding for small businesses. Lenders typically expect you to invest at least 15% of your personal funds towards the total project cost, in addition to a good credit score and sufficient collateral. If a bank needs additional security to back the loan, they might want a Small Business Administration (SBA) loan guarantee.
Borrowing from friends and family is another option. Treat these loans as you would one from the bank by putting all agreements in writing to maintain clarity and prevent misunderstandings.
When other funding sources aren’t enough, microloans can help to fill the gap. These are available through local economic development organizations and often include business training in addition to funding.
Step 3: Register the Business
Starting a recycling business involves a few legal steps to ensure your company operates within the rules and regulations set by your state and the federal government. Here’s a general overview of registering a recycling business.
Determine your business structure: The first task is to choose a business structure. There are four types of business structures you can consider:
- Sole proprietorship: This is the simplest form of business structure, offering ease of startup and lower costs. However, it does not provide any personal liability protection.
- General partnership: This involves two or more people who agree to share in the profits or losses of a business. It’s relatively easy to establish but does not offer personal liability protection.
- Corporation: This is a more complex business structure that provides personal liability protection. It requires more administrative work and can be more expensive to set up.
- Limited Liability Company (LLC): This structure combines the simplicity of a sole proprietorship or partnership with the liability protection of a corporation.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Recycling licensing: Licensing requirements for recycling businesses vary depending on the items being recycled and specific state and federal requirements. Some examples include:
- Local recycling license: You will likely need to get a permit from your local landfill or transfer station in order to recycle materials.
- Solid or hazardous waste recycling facility license: Obtained from the Environmental Protection Agency3 (EPA) and state environmental agencies to handle and process recyclable materials safely.
- Local zoning and land use permits: Approval from local zoning boards is necessary for determining suitable locations and permitted activities for recycling facilities.
- Vehicle registrations: Ensure proper Department of Motor Vehicle (DMV) registration tags for your trucks.
- Highway carrier operating license: If you transport recycling materials across state lines, you’ll need a license from the Federal Motor Carrier Safety Administration.
- Air quality control permits: Obtain the necessary permits to comply with state and federal air quality emission standards.
- Stormwater discharge permit: Required for facilities exposed to rainwater to prevent contamination, as mandated by the Environmental Protection Agency.
- Waste tire hauler registration: In most states, registration is required if your business involves hauling used and scrap tire materials.
Business licenses and permits: Depending on your location, there will likely be a variety of general business registrations needed before opening. This could include a business license, seller’s permit, and Employer Identification Number (EIN).
Step 4: Choose a Facility & Set Up Operations
The next step of starting a recycling business is choosing a facility and setting up the operations.
The first task is to acquire a suitable location. The ideal spot for your recycling facility should be easily accessible for both waste collection and delivery. This ensures smooth operation and reduces transportation costs. Also, consider zoning regulations and the cost of real estate, as it can significantly impact your startup costs. If you plan to offer drop-off and pick-up services, consider a location that is convenient and visible to potential clients.
Next, you’ll need to set up a system for collecting, sorting, and processing recyclable materials. This involves purchasing and maintaining recycling machinery, hiring a team to run the machinery, and developing a working system or protocol. You’ll also need to consider the different types of recyclable materials that you want to handle and ensure you have the appropriate machinery and expertise to handle them.
Once you’ve set up the collection system, you’ll need to plan how you will transport the recyclables from your facility to your customers.
Step 5: Hire Staff
As a recycling business owner, hiring employees is a significant step that comes with a range of responsibilities. Before you begin the hiring process, there are several legal steps you must complete:
Obtaining an Employer Identification Number (EIN): This is a unique number assigned by the IRS, essential for tax purposes. It’s used to identify your business entity and is necessary for reporting taxes and other documents to the IRS.
Employment eligibility verification: As an employer, you must verify that each new hire is legally eligible to work in the United States. This is typically done using the Form I-9, which must be completed for each employee.
State hiring requirements: Each state has different forms and reporting requirements when it comes to hiring employees, so it’s important to familiarize yourself with these before starting the hiring process.
Workers’ compensation insurance: Most states require employers to have workers’ compensation insurance. This insurance provides benefits to employees who suffer job-related injuries or illnesses.
Understanding labor laws: Familiarize yourself with federal and state labor laws. These laws cover various aspects of employment, including minimum wage, overtime, and workplace safety. As a recycling business, it’s crucial to ensure that your operations comply with these laws to avoid legal complications.
Step 6: Prepare to Open!
After covering the core steps to start a recycling business, there are still several tasks to complete. While these might differ depending on your specific needs, here are some common elements to address:
Business insurance: Common types of insurance include liability insurance, property insurance, and workers’ compensation insurance. Liability insurance can protect against damages or injuries to third parties, property insurance covers damage to your facility or equipment, and workers’ compensation insurance covers employees in case of work-related injuries.
Setting up bookkeeping: Bookkeeping helps track daily transactions, manage taxes, prepare financial statements, and keep your financial health in check.
Opening a business bank account: This helps in keeping your business finances separate from your personal finances, making financial management more straightforward and transparent.
Common Questions When Starting A Recycling Business
How much does it cost to start a recycling business?
Estimated total start-up costs for a recycling business can range from $150,000 to $750,000 or more, depending on the scale and requirements of your specific operation. Here is a breakdown of the costs:
Location: The most substantial cost is typically the land requirement for setting up your recycling plant. Depending on the size and location, this could range between $120,000 to $1,000,000.
Equipment and machinery: Another substantial expense is the equipment and machinery for waste collection, sorting, and processing. Depending on the size and scope of your operation, equipment costs can range from $100,000 to $500,000 or more.
Business registration and licensing: The cost of licensing for a recycling business can vary depending on the type of license and the location of the business. Generally, you can expect to pay between $100 and $500 for a business license, and $50 to $200 for a recycling license. If your recycling company is processing any hazardous waste, you’ll need to obtain an Environmental Protection Agency (EPA) permit, which can cost between $100 and $10,000 or more, depending on the size and scope of your recycling operation.
Insurance: While the cost of insurance depends on factors such as the size of your operation and coverage options, a general liability insurance policy specifically tailored for a recycling business can start at around $5,000.
Marketing and branding: Establishing your brand and promoting your recycling business requires initial marketing expenses. This can include logo design and branding materials as well as creating a professional website. Budgeting $2,000 to $5,000 for marketing and branding is a typical starting point.
Working capital: It’s important to have enough working capital to cover initial expenses such as employee salaries, utilities, and supplies before your business starts generating revenue. Having three to six months’ worth of operating expenses on hand as a buffer is recommended, with a typical range of $20,000 to $50,000.
How profitable is a recycling business?
Starting a recycling business is a complex project with many costs and moving parts. However, given the revenue that recycling centers bring in and the expected growth, there is a lot of potential.
Recycling businesses can earn a profitable income by turning recycled materials into raw, sellable materials. However, a recycling business’s profit largely depends on the cost of materials and their sale price.
For example, cardboard is a common material that is recycled and resold. The average going rate for a ton of cardboard is $75, and it can sell for as high as $100 per ton. Many recycling centers take cardboard drop-offs without charging customers or paying for the cardboard, which means that a ton of donated cardboard turns into $75 – $100 for the business.
Other materials, such as plastics, aluminum, glass, and mixed paper, sell either by the pound or ton, and prices inflate and depress depending on the supply and demand. Typically, recycling businesses buy the recycled material for a fraction of the cost that it is sold at once it has been sorted, cleaned, and packaged.
Therefore, researching materials that continually sell well and hold value can help determine which materials to focus on for your recycling center to improve profits.
Are there grants to start a recycling business?
While it’s extremely rare to find a grant to start a recycling business, it is perhaps the most likely industry to have startup business grants. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development or environmental office to see if they have any grants available.
What skills are needed to run a recycling business?
Nearly every business venture takes a commitment of time and money to get started. Certainly, recycling centers are no exception. So, to start a recycling business, you will need a few handy skills to help reduce waste (in terms of your time and money).
Understanding waste laws and regulations: Working with recycling means following local and federal waste laws and regulations. Failing to do so could result in crippling fines, injuries, and setbacks. In addition, regulations ensure that employees and the environment are protected from hazardous waste. So, a well-rounded understanding of waste laws and compliance helps protect your employees and environment while also preventing unnecessary setbacks.
Understanding of the equipment: Many recycling centers utilize equipment to sort and process the materials. A recycling business that starts small may sort and package by hand to save on equipment costs. However, as the business grows and capital increases, the business may have the opportunity to purchase equipment that can expedite the sorting and packaging process.
Therefore, having mechanical knowledge or hiring an employee with mechanical knowledge can help keep the recycling business running smoothly.
Networking: Building a recycling business means you need recycled materials coming into the center and buyers available to purchase the raw material. These connections come through networking.
Two key aspects of building a solid network include:
Marketing – You will need to market to buyers who purchase your raw materials, generating income. Additionally, you may need to use marketing skills to form contracts with businesses and waste management businesses to buy recycled items.
Sales – Sales skills come in handy when it’s time to sell materials. Selling and representing your product for the best price possible is a skill that develops over time but will greatly assist the business’s growth.
People management skills: You may need multiple employees for sorting, machine maintenance, and processing raw materials for resale. This will require an ability to manage people, schedules, payroll, and disputes. Fortunately, you can delegate many of these tasks to hired positions such as HR and accounting personnel.
What is the NAICS code for a recycling business?
The NAICS code for a recycling business is 423930, which is classified as Recyclable Material Merchant Wholesalers.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?