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Pallet Recyclers Can Start Small; Getting Lumber for Free Is a Key
Pallet recyclers can start small, but getting lumber for free is a key; Clarence Leising and Ian Liddell explain what it takes — and what it costs — for a start-up operation.
By Staff Writer
Date Posted: 9/1/2000
Pallet recycling can be a better living than working for someone else, but what would it take to get into the business and how much money is there to be made? What does it take to get started?
What You Need
If you are just starting off and wish to spend as little as possible, you may be able to begin with as little as $30,000 to buy new recycling machinery. Used machinery may save you money, but exercise caution when pursuing this option. You should see the specific piece of used machinery before buying it.
The machinery prices provided here are for new machines. Delivery, options, and model upgrades may increase prices.
You need a dismantling machine to take pallets apart. Two types of dismantling machines are considered here. One is a pressure-type dismantler that either pops (snaps) or shears boards off the stringers. The other is a bandsaw style machine, which uses a saw blade to sever the nails. If you choose a pressure-type dismantler, you also will need an unstubber to compress the nail heads. A bandsaw dismantler eliminates the need for an unstubber.
A pallet recycling business also requires a chop saw or trim saw to cut material to size, and a nailing machine can automate the pallet assembly process.
A bandsaw dismantler costs about $7,000 — $12,000. A pressure-type dismantler and unstubber together cost from $5,500 to a top end of about $18,000. A semi-automated pallet assembly machine costs about $15,000; there are several models on the market around this price. A chop saw or trim saw costs from $3,000 to about $6,000.
How do you get financing to start and grow a business?
Many financial firms, including banks and leasing companies, require that a pallet company be in business for two years before they will approve it for financing. You will need to take steps on day one of your business to establish when your company began.
Get a copy of your credit report from all three reporting agencies: Experian (888-397-3742), Trans Union (800-888-4213), and Equifax (800-685-1111). Review them for inaccuracies and contact the bureaus to resolve any disputes. It usually takes about 30 days to make corrections.
Apply for credit, preferably in your company name. Make sure the person pulling your credit lists your company as your employer. Credit analysts and automated scoring systems often use this as one verification tool to verify your time in business. No matter how small the amount, showing a lender that you pay back loans on time will help you.
Paying cash may appear to be the smart thing to do. In a few years, though, you may want to automate your shop and will not have the cash to do so. You will need to have a business borrowing record to get preferred rates.
Pay all your personal bills in a timely manner. It is more important to pay your home mortgage and credit cards on time than it is to pay your business suppliers. This also applies to any co-signed notes or credit cards. Lenders have a very low tolerance for any slow payment history for a new business. Any past due payments will dramatically lower your personal credit bureau score, especially if it is a mortgage or car payment.
Register your business with Dun & Bradstreet (800-333-0505). In today’s automatic credit scoring systems, a D&B report has become a critical element. Call D&B to get a specific credit reporter you can work with in the future. Whenever you get additional trade credit, call and ask D&B to add it to their trade sources to generate your report. Many suppliers automatically will report your trade information to D&B. You can improve your PAYDEX score by contributing your own suppliers.
Also, open a business checking account and maintain a high balance. A bank may charge you more to operate a business account versus a personal account, but not having one will cost you even more. Most lending institutions use this information as a major criteria in dating and verifying your business. Keeping a high balance may cost you a few dollars in interest, but maintaining a low balance may prevent you from getting lower-cost financing.
Register yourself with all government agencies. Get a tax identification number, register for a business license, and apply for a sales tax exemption for manufacturing. Many states do not require that you take these steps; however, lenders often ask for these items to date back your information. In most states you do not have to pay sales tax on equipment used for pallet manufacturing or recycling. Applying for this license before you purchase any equipment will save valuable tax dollars you can reinvest in the business.
What You’ll Make
How much money you can make depends on several factors. The first is how much wood you can get. An average dismantled pallet should yield 10 boards and two and a half stringers. On average, if you dismantle 400 pallets per day, you should have enough recycled lumber to make 300 pallets per day.
You may have to buy some stringers because most used stringers that are recycled are less than 48 inches. Recycled stringers that are longer than 48 inches can be cut down, but they also will have to be notched. (A single-head notching machine costs about $3,500 to $8,000 or more.)
Other factors include how much cutting is required, and how many stringers can be recycled and how many are bought.
How Many People
You can have a pallet recycling business with only five people. It requires one person to run the dismantler, one person to run the unstubber, one person to trim the lumber, and one person to build the pallets. One person is needed to operate a forklift — you may want your supervisor to run the forklift. Your priority should be to keep the machinery running as much as possible.
With as little as two men, a dismantler, a chop saw, and an unstubber, it is still feasible to dismantle between 700 and 800 pallets per week. The recycled material can be used to produce between 500 and 600 pallets per week. At an average price of $5 per pallet, this level of production would generate between $2,500 and $3,000 per week. This is a pretty good living, but it will not be an easy living. It can be done, but it requires a lot of physical labor.
Wood from Where?
One of the newest and easiest sources of wood is the local landfill. Landfills don’t want pallets. You should be able to make an arrangement with them to stack the pallets off to one side somewhere for you to pick up later. Pick them up every day.
Check with local businesses, such as nurseries and warehouses. You will find some that have pallets stacked up out back. There usually will not be many GMA pallets. Some of these businesses will want you to haul their scrap pallets away. If all you are getting is scrap, you should charge them for your services. Unwanted but useable pallets can sometimes be obtained at no cost, but 50 cents each is reasonable for mixed pallets.
You need an area at least 30-feet by 30-feet. You also will need an air compressor. The company that you buy nails from will supply your power nailing tools for free.
Another option would be to approach local pallet shops. Make them the following offer: If they bring you their old pallets, you will turn them into usable boards at a fair, negotiated price. Some pallet shops are paying 12 cents per board. If you got 400 pallets per day from one shop, they would generate 4,000 boards. At 12 cents each, that would generate $480 per day. The pallet shop would benefit because you take off their hands all the dismantling work and trimming.
This arrangement also will bring you some GMA pallets that you can sell as well as 48-inch boards that you can cut down and use to make pallets. You could spend two days each week recovering lumber and make about three hundred pallets in the other three days.
Things to Consider
The first thing you need to consider is the cost of wood. The key is to get the lumber for free. If you can do that, you can be successful. You should be able to pay $1,000 per week towards your machinery, which would leave you debt-free in seven to eight months, as well as put $1,000 in your pocket and $1,000 in your partner’s pocket (based on a two-man shop).
Second, this approach will work anywhere in the U.S., but you may be more successful in a rural area that has not already attracted a recycler. In most major cities, established pallet shops or ‘freelancers’ already are picking up the pallets. You can be successful but will experience more established competition.
Third, you need to be careful when you buy wood from anyone. You have to figure the cost of the wood, the cost of production, and the sales price in order to make an educated decision as to what price to offer for wood.
Finally, keep in mind that the pallets you buy have to be at least 40 inches or you do not want them. Remember, in order to build a GMA pallet, which will be your bread and butter pallet, you need 40-inch boards.
(Editor’s Note: Clarence Leising worked in management positions for pallet recycling companies in the Northeast for 25 years and currently is a sales representative and recycling specialist for Bronco Pallet Systems Inc.; he may be contacted by calling (800) 990-7872. Ian Liddell is senior lease manager for First Sierra Financial and may be reached at (800) 783-1616. The information and figures in this article come from the authors; they are not necessarily supported by the publisher.)