How to Start a Recycling Business: A Step-by-Step Guide

Updated on January 31, 2020
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As more and more people move to low-waste and sustainable lifestyles, the demand for businesses that can help them accomplish that goal is increasing. That means starting a business in the recycling industry can end up being a lucrative eco-friendly small business idea. In fact, recycling facilities accounted for $6 billion in total revenue in 2019.

It can be hard to figure out how to start a recycling business, but we’ll help walk you through the steps to take so you can go about the process thoughtfully and legally. 

How to Start a Recycling Business in 9 Steps 

There are a lot of factors to consider when starting a recycling business. To start, we’re breaking down nine of the most crucial steps to tackle to start your business on the right foot.

Step 1: Decide What You Want to Recycle

The first thing you need to decide when approaching the process of how to start a recycling business is deciding what exactly you’re going to recycle. This is a question that seems simple enough but it should actually involve quite a bit of research on your part. Different materials have different recycling criteria, so you’ll want to limit your scope enough that you can realistically handle the process.

Not to mention, you should choose a product that people are actively trying to recycle. In order for any business to be successful, there needs to be enough of a demand to keep the business going. Roughly 42% of businesses that fail, fail because there isn’t a need for their products or services. So it’s important that you choose to start a recycling business that will have plenty of demand. 

Consider the types of industries operating in the area where you want to open your business as well as the equipment you’ll need to actually do any collection and the recycling itself. You should also take into account whether the town or city you want to operate in already offers recycling services to residents for certain materials at no cost.

Step 2: Decide What Services You’ll Offer

Next, you’ll need to decide what you actually want your business to do. Do you want to collect the recycled materials yourself? Do you want other companies to collect and then bring the materials to you for repurposing? Do you want to do the actual recycling of the materials? Maybe all of the above?

In other words, decide what services your business will provide. Recycling is such a broad term, which means you have lots of options to choose from. Even businesses that collect old furniture and fix it up to resell it are technically recycling businesses, although they may not be the first thing that comes to most people’s minds when they hear the term. 

Recycling Business Ideas

  • Battery recycling
  • Electronic recycling
  • Scrap metal recycling
  • Scrap plastic recycling
  • Paper recycling
  • Textile recycling
  • Consignment
  • Food waste recycling or composting

how to start a recycling business

Step 3: Choose a Business Name

To open a recycling business—or any business for that matter–you’re going to need to come up with a business name. Since you’ve already established what types of products you’ll recycle and what services you’ll provide, your business name should reflect this information so it’s more easily identified by potential customers. Once you have a business name in mind, you’ll then want to make sure that it’s available for use. 

Depending on the state where you’re planning to open your business, you’ll look up the business name either online with the secretary of state’s office or another office affiliated with the state government, likely the chamber of commerce. 

Step 4: Choose a Business Entity

Next, it’s time to choose the business structure you want your business to have in the form of a business entity. This step is crucial as your business entity will determine how your business is taxed, how much liability protection you’ll have, and more. We suggest consulting with a business attorney or tax professional to help you make the best choice for your business.

Some popular business entities include sole proprietorships, general partnerships, limited liability companies (LLCs), and corporations. 

Keep in mind, if you choose a sole proprietorship or general partnership, you won’t have to register your business with the state, but you may want to file a DBA, or “doing business as” name that allows your business to operate under a name other than your legal name (the default).

If you choose a different business entity, your next step will be to register it with the state in which you’ll be operating. This can be done through the same state website where you searched available business names. You’ll also be required to pay a nominal fee at this point.

Step 5: Write a Business Plan

You’ve already done a significant amount of planning and preparation for your recycling business, and now it’s time to create a formal document outlining it all. In other words, it’s time to write a business plan

Your business plan should include some specific sections, including an overview of the products and services you’ll offer, how your business is structured, a market analysis, financial projections, the amount of capital you’ve invested in the business, any funding you’ll seek out, and more.

You can create your business plan from scratch or you can make the process easier by using a business plan template. Your business plan will be a helpful tool for yourself as you build your business in the first, formative years, but it will also be necessary for any investors or partners you seek out in the future, so you’ll want to create a thorough and professional document. 

Step 6: Get Any Licenses or Permits

This step of starting a recycling business is going to vary incredibly from state to state, so you should be sure to either consult a lawyer or carefully check the laws and regulations in your state. Even better, do your own due diligence while also consulting professional help.

Keep in mind that there may be laws around more than how you recycle the items you’re collecting. There might be additional laws around the storage of the materials you’re planning to recycle, for example. You’ll need the proper permits for the storage and for the recycling of materials, certain training for potentially hazardous materials, and other business registrations depending on the state you’re operating in. You can check out our guide on getting a business license for details on this process.

Step 7: Apply for an EIN

While this isn’t required for every business, applying for an employer identification number (EIN) is a useful step for any business owner. If you plan on hiring employees, this step is required, but beyond that, having an EIN can help you when it comes to applying for business loans, filing taxes, getting a bank account, and more down the line. 

Plus, you can easily apply for an EIN online from the IRS for free, so there really isn’t a downside to applying for one. If you don’t want to apply online you can also apply via fax, by phone, or by mail. There are benefits of getting an EIN that you shouldn’t ignore when setting up your business.

how to start a recycling business

Credit: IRS

Step 8: Open a Business Bank Account 

You’re going to need a business bank account if you want somewhere to keep the money your business makes or any funding you get for your recycling business. The main reason you need a business bank account is that it’s important to keep your personal and business finances separate from one another.

Keeping these finances apart means you can take action to improve your business credit score, which puts your business in a better position to get a loan down the line and helps make filing your business taxes easier. You can also increase that business credit score by paying your vendors on time or early if possible, using a smaller percentage of your credit line, disputing any errors, and more.

You may be tempted to use your personal bank accounts for your business—especially if your business and personal taxes are filed together—but it’s always a good idea to have a designated business bank account. In addition to the reasons above, having this separation will also help protect your personal assets in the event that someone takes legal action against your business. You should also look into a business credit card at this point so you have an easy way to make purchases for your business.

Step 9: Apply for Funding 

Depending on the type of recycling business you want to start, you might need a large or small amount of funding to get started. The facilities, equipment, vehicles, employees, and more can all add up and cost you quite a bit, especially when you’re first starting out. 

Getting a traditional business loan when you’re first starting out can be difficult because you likely won’t have an established credit score or business history, nor will you have the revenue required for a loan. We recommend exploring your startup funding options, of which there are several. Loans from friends or family, crowdfunding, small business grants, and even 0% introductory APR credit cards can all help you get your recycling business off the ground. 

Then, once you’ve been in business for a year or so with strong financials, you’ll be able to qualify for more traditional and attractive funding options, like a bank or SBA loan, to help you continue to grow your business.

The Bottom Line

Once you’ve decided to start a recycling business, you have a host of other decisions to make, research to do, and paperwork to fill out. Start with the steps above to get the ball rolling and your new business will be open in no time. 

Remember that checking in with a business lawyer is always best to make sure that you’re covered and aren’t missing any key registrations or permits when opening your new business.

Nina Godlewski

Nina is a former staff writer at Fundera where she worked to help make complex business topics more accessible for small business owners. She was previously a staff writer at Newsweek covering technology, science, breaking news, and culture. She’s also worked as a reporter for Business Insider and The Boston Globe. Nina has a degree in communication studies from Northeastern University. Email: nina@fundera.com.
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