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Back to Basics: Key Concerns for Getting Started In the Pallet Recycling Business
Pallet recycling guru, Clarence Leising, offers proven strategies for how to successfully start a pallet recycling operation. From securing your core supply to picking the right location and having the proper management team, he covers the essential ingredients for startup success.
By Clarence Leising
Date Posted: 8/1/2013
The first thing to know about getting in the pallet recycling business is that it is lots of hard work and long hours. Like any other business if you’re going to be a success, you must have owners and managers driving the operation to reach goals and grow. The owner needs to be able to set the tone while focusing on new business development, landing new core supplies, finding new customers, etc. You must have the drive to succeed or else you don’t belong in this business. There is no more easy money in the pallet business.
Most people who get in this business don’t realize how labor intensive it is. Sure, you can automate facilities. But there are a lot of tasks that can’t easily be automated.
When you are in the new pallet business, your operation takes cut wood and produces the same product over and over again. But in the recycling industry, you are taking a big pile of scrap and turning it into a pallet. This makes everything harder and more complex. You must get all the material the same size and thickness when the raw material source you start with is a variety of sizes and dimensions.
Your startup strategy depends on how big you want to be from the beginning. If you are going into it as a small operation, just let your supply and demand guide your growth process.
The most important thing in the recycling market is your core supply. You can’t sell the pallet if you don’t have it, and the key is making sure your supply is solid. Some customers demand a long-term contract, and you want to make sure that you can deliver on what you promised. You can generally find the customers if you have the pallets, especially in today’s market.
If you are going into the market with a lot of automation, this increases the need for reliable and growing core supplies because you will have to pay for the equipment even when your core supply shrinks. One of the advantages of workers is that you can always send them home or lay them off if you don’t have enough pallets to keep the operation humming. This all starts with a few key accounts that provide a large volume of used pallets. Retailers and distribution centers are ideal sources.
Another consideration when you startup a facility is to have enough land to be able to inventory pallets for future use. This allows you to sit on pallets and sell them when customers need them versus having to always keep product moving which might mean you sell a pallet for less than you want just to get it off your yard.
You want the most usable cheap space you can find that is close enough to core sources so your hauling costs don’t devour your profit. There were times we sat on pallets and collected a certain size pallet for years. All of a sudden three years down the line something came across as an odd-ball request, and we ended up using them for something. It’s like found money.
One of the problems of inner city pallet shops is that they get land locked by the city. Generally, these facilities have small yards. And the rent is likely to keep going up. Even if you own the land, it may be best to move your facility somewhere else and rent out your land to a more profitable tenant.
Instead of starting a recycling operation, you may be able to buy an existing facility especially if the owner is getting older and is looking to retire. A high percentage of pallet companies are owned by people in their 60s, and you may be able to find a good company with solid core supplies if you look. It is best to buy the land along with the company because you don’t want to face future leasing issues. Plus, the real estate may be the biggest point of financial gain depending on the market when you sell.
You want to know about the company’s overhead structure, its relationship with key customers and core suppliers, the condition of equipment, local market dynamics, etc. Has the company lost any core accounts recently? What about local market competition? Will key personnel stay on with the business at least for a while?
Most pallet companies rely on the owner to drive growth and sales. Getting to know the former owner will let you know if you think the company is a good fit for your business style. Whether you are starting from scratch or buying an existing operation, success in the pallet business requires street smarts and hard work.