Starting a tire shredding business can be a lucrative opportunity, especially as environmental sustainability becomes more important. Tire shredding provides an eco-friendly way to recycle used tires that would otherwise end up in landfills. In this guide, we will provide an overview of the tire shredding business and steps to get started.
A tire shredding business takes old tires that would normally go to landfills and shreds them into rubber powder and tire chips to be used to make other recycled rubber products. Uses for waste tires include landscaping rubber mulch for athletic fields and playgrounds, rubberized asphalt, rubber mats, replacing sand or clay for road and landfill construction, tire-derived fuel oil (TDF) as a cleaner alternative to coal for cement kilns, paper mills, and utility boilers, and more.
The tire recycling industry has grown steadily over the last decade. With over 280 million tires discarded annually in the US, there is an abundant supply of raw material. The demand for recycled rubber is also increasing as sustainability becomes more important. Major end markets include tire-derived fuel, rubber mulch, and crumb rubber for athletic fields and asphalt.
Some key trends to watch out for as you research starting a business in the tire recycling industry include:
- Increased state and federal legislation banning whole tires from landfills, creating more supply.
- Growth in crumb rubber as a replacement for virgin rubber in products.
- Technology advancements that allow more tires to be processed faster.
- Export opportunities to developing countries that lack recycling infrastructure.
- Consolidation among major recyclers as the industry matures.
Steps To Start A Tire Shredding Business
Step 1: Research the Market
Starting a business is a big decision that shouldn’t be taken lightly, and before you invest your time and money, it’s important to start with market research. This research can help you understand the industry landscape, identify opportunities, and make informed decisions that increase your chances of success.
The first thing on your to-do list should be understanding state and local regulations. Before you start any planning, check state and local regulations regarding collecting, storing, transporting, and processing scrap tires.
Once you know there are no significant regulations in the way of starting this type of business, the next task is to look into the demand in your area. Identify and talk to local tire suppliers like auto shops, landfills, and junkyards, as well as potential end users such as manufacturers and construction companies. This will give you a clear picture of the supply and demand dynamics in your area.
Another important factor to consider before starting a tire shredding business is seeing who else is shredding tires in your area. Assess their service offerings, processing capacities, pricing, and customer bases. This can point out gaps in the market that you might fill or areas where you can offer something better or different.
Step 2: Write a Business Plan
After gaining insights from your market research, the next step in starting a tire shredding business is putting together a business plan. You might have an amazing idea, but one of the reasons why a business plan is helpful is that it serves as a reality check. There are a lot of moving pieces when starting a tire shredding business – from understanding regulatory requirements to estimating operational costs, identifying potential customers, gauging competition, and so on. A business plan helps you consolidate all this information into a structured format.
Another component of your business plan is the financial section, where you project income and expenses. By projecting your income and expenses, you’ll get to put your assumptions to the test. If the projected revenues cover the expenses and provide a reasonable profit, then the business idea is likely feasible. If not, you may need to reassess your pricing strategy, find ways to reduce costs, or even reconsider the business idea itself. This isn’t just important for you, but lenders will pay close attention to the financials if you are seeking funding.
Related: How to write a business plan
Step 3: Source Funding
You’ve got your market research done, and your business plan is all set. Now, you face another big task: securing the funding for your tire shredding business. Money is often a significant challenge for new business owners, especially in a sector like tire shredding, where equipment and operational expenses can be high.
Personal savings: First, look at what you can contribute from your own savings. If your savings fall short, it’s time to explore additional options.
Traditional lenders: Banks are a common place to seek business loans. They have their own set of rules, though. Usually, lenders will ask that you contribute 15%-25% of your own funds toward the total cost of the project. Your credit score matters, too, as does having something valuable, like property, to use as collateral. If a loan from a bank seems risky to the lender, an option they may consider is a Small Business Administration (SBA) loan guarantee.
Friends and family: Friends and family are another potential source of funding. They might be willing to invest in your business or lend you money. However, mixing business with personal relationships can be tricky. It’s essential to put all agreements in writing to clearly define terms and prevent misunderstandings. This formal approach helps protect both your personal relationship and your business.
Microloans: When traditional loans aren’t suitable, or you only need a small sum, microloans can be a good fit. These are smaller amounts aimed specifically at helping startups and small businesses. What’s nice is that some organizations offer business training along with the microloan, giving you a little extra support as you start your journey.
Step 4: Register the Business
The next step is to register your business and be legal to operate. This process involves choosing the right business structure, registering your business name, obtaining licenses, and making sure you comply with all environmental rules.
Choosing a business structure: First, decide on the type of business structure. Your options are:
- Sole proprietorship: The easiest and least expensive to start. You’re the sole owner and are personally responsible for the liabilities of the business.
- General partnership: Two or more people share the responsibilities, costs, profits, and liabilities of the business.
- Corporation: A separate entity from the owner(s), protecting against personal liability but with more operational complexities and higher costs.
- Limited Liability Company (LLC): Combines features of a corporation and a sole proprietorship/partnership. Offers protection against personal liability without as many regulations as a corporation.
Each state has different rules for these structures. While there’s no one-size-fits-all answer, many businesses in industries with potential liability issues often choose an LLC or a corporation for added legal protection.
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.
Obtain business licenses and permits: Depending on your location, there will likely be a variety of business registration requirements needed before opening. This could include environmental permits for waste handling, zoning approvals to operate in your chosen location, and general registrations such as a business license, seller’s permit, and Employer Identification Number (EIN).
Step 5: Acquire & Set Up the Property
Once your business plan is solid and your funding is secured, your attention should turn to setting up the operational side of your business.
Picking the right location is the cornerstone of your operations. You can’t just set up anywhere; the site must be zoned for industrial use. Plus, it needs to meet a slew of other requirements like noise regulations, air emissions guidelines, waste storage rules, and fire safety measures. Make sure you get a place that ticks all these boxes, not just one that offers a good deal on rent.
When choosing a location, also consider the physical space (2-5 acres is often recommended) you’ll need for your operation. You’ll need a site large enough to house equipment, store tires, provide processing areas, and allow truck access. On top of that, evaluate your location’s proximity to both suppliers and buyers to minimize transportation costs.
Once the location has been secured, the next step is to invest in the necessary industrial equipment. This includes tire shredders and grinders, which are critical for the tire shredding process. Ancillary equipment such as conveyors and sorting tables is also necessary to facilitate the movement and separation of materials during the process.
Step 6: Establish Relationships with Suppliers
One challenge of running a tire shredding business is finding reliable suppliers for the scrap tires you’ll be shredding. First off, aim to establish relationships with a variety of suppliers, including tire manufacturers, auto repair shops, junkyards, landfills, and/or waste management companies.
You might be tempted to cast a wide net when it comes to suppliers, but consider focusing your initial efforts closer to home. Network with tire retailers and auto shops in your area to set up tire collection agreements. Local businesses are more likely to work with you, especially if you can make their lives easier by providing a regular pick-up service. Aim to source tires from suppliers within about 150 miles of your location. This distance strikes a balance between availability of supply and the cost of getting it to your facility.
Step 7: Hire Staff
When starting a tire shredding business, you may need to hire employees to help manage and operate your venture. Typically, a tire shredding business would require machine operators to run the shredders and grinders, laborers to sort and handle the tires, truck drivers for deliveries and pickups, and administrative staff to manage paperwork and customer relations.
As a new employer, you’ll have several responsibilities and legal requirements to fulfill before you can start hiring. Each state will be different, but here is a general overview.”
- Obtaining an EIN: You’ll need an Employer Identification Number (EIN) from the IRS for tax reporting purposes.
- Employment eligibility: Make sure prospective employees are eligible to work in the U.S. Typically, this involves verifying their Social Security numbers and possibly conducting background checks.
- State reporting: You must report new hires to your state’s new hire reporting agency. Keep in mind that each state has its own set of requirements for reporting new employees.
- Worker’s compensation: In most states, you’re required to have worker’s compensation insurance to cover potential workplace injuries.
- Labor laws: Make sure you’re familiar with federal and state labor laws concerning minimum wage, overtime, and workplace conditions.
Step 8: Prepare to Launch!
As you near the completion of setting up your tire shredding business, there are likely several remaining steps that need to be addressed. While these steps offer a good starting point, your specific needs may differ.
Business insurance: Securing the right insurance protects you from unforeseen situations like equipment damage or workplace accidents.
Setting up bookkeeping: An accounting system is essential to manage daily transactions, prepare financial statements, and file taxes. Software like Wave Accounting (FREE) or Quickbooks can help you keep tabs on your finances.
Opening a business bank account: Having a separate bank account for business transactions helps you keep personal and business finances apart, simplifying accounting and tax reporting.
Create a marketing strategy: Develop a comprehensive marketing strategy to let potential customers know about your new business. This chould include creating a professional logo and website, as well as utilizing social media, local advertising, and direct mail campaigns. Finding end users for your shredded tire material is also important for revenue. Aim to establish relationships with landscapers, construction firms, or even tire-derived fuel plants.
Common Questions When Starting A Tire Shredding Business
How much does it cost to start a tire shredding business?
The total costs to start a tire shredding business can range from $300,000 to over $1,000,000. Here are some of the key startup costs involved:
Facilities: One of the most significant expenses is securing a location to store and process the tires. This could be a warehouse or industrial building that you rent or purchase. The cost of an initial deposit will depend on the size and location of the facility.
Site preparation: Initial renovations like electrical, paving, and utility installation can cost $100,000 to $250,000, depending on the facility’s condition.
Equipment purchase: An industrial tire shredder, conveyors, grinders, sorting tables, etc., can cost $250,000 to $750,000, depending on capacity and features.
Business registration: The cost of registering your business and applying for environmental permits varies by state but usually ranges from $500 to $1,000.
Insurance: Initial insurance costs can range from $2,000 to $5,000, depending on your coverage needs and risk assessments.
Miscellaneous: Other upfront costs can include utility deposits, office supplies, and initial inventory, which can add another $1,000 to $5,000 to your total.
It’s also recommended to have 3-6 months of operating expenses to have a financial cushion in case of any unexpected costs or lower-than-expected initial revenues.
How profitable is a tire shredding business?
Starting a tire shredding business can be profitable, but profit margins are dependent on factors like location, capacity, costs, and rubber market prices. Here is an overview of the potential profits:
The average tire shredding facility processes around 1 million tires per year. With a typical tipping fee of 5 cents per tire, revenue from processing fees would be $50,000 annually. The shredded rubber can be sold for an average of 25 cents per pound. With the average passenger tire weighing around 20 lbs, that equates to $500,000 in annual revenue from rubber sales. So, the total potential annual revenue is approximately $550,000.
Variable costs like labor, utilities, maintenance, and transportation may range from 2-5 cents per pound. For a 1 million tire facility, that could be $200,000 – $500,000 in variable costs. Fixed costs like rent, insurance, and property taxes could add another $150,000 in overhead expenses. That puts total annual expenses between $350,000 and $650,000.
By subtracting expenses from revenue, the potential annual pre-tax profit for a 1 million tire shredder is estimated to be $100,000 to $200,000.
It’s important to note that these are estimates, and actual figures can vary based on many factors.
Are there grants to start a tire shredding business?
The NAICS code for a tire shredding business is 423930, which is classified under 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.
US Tire Manufacturer’s Association (previously called the Rubber Manufacturer’s Association)