You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your compost business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a compost business?
This business is labor intensive and may cost a lot to get set up. Between land costs and maintenance, costs for hauling and distribution of compost, and collection (if your business offers collection services), startup costs may exceed $1 million.
The bulk of the costs go into the land required for composting, the tools required for maintenance, compliance with local and state regulations, and trucks to haul compost to and from the site.
What are the ongoing expenses for a compost business?
Ongoing expenses for this type of business include gasoline for trucks, marketing, office utilities, and labor costs to maintain the compost fields. These costs may be as little as $10,000 for a very small compost field up to hundreds of thousands of dollars for a large-scale operation.
Who is the target market?
Your target market includes local governments, HOA neighborhoods, and farms and commercial enterprises that need a high-volume of soil.
How does a compost business make money?
Compost companies make money by selling fully composted material, which is essentially high-quality dirt or "top soil" used as fertilizer or ground cover. It is usually nutrient-rich and ideal for use on farms, gardens, and in residential neighborhoods.
How much can you charge customers?
This depends on the local market. Selling in bulk helps increase your total revenues, but may lower your profit margins. Companies typically charge between $5 and $10 per cubic foot. However, discount prices may drive those prices down to $1 to $3 per cubic foot. Local governments may also demand a lower price as well as farmers buying compost in bulk. You should plan on minimum charges of $1 per cubic foot, with an average sale price of $3 per cubic foot.
How much profit can a compost business make?
Profit depends largely on the local demand for compost. Compost is in high demand in some areas, allowing businesses to earn net profit margins in excess of 10%, while other markets command razor-thin margins. Average revenue in this industry (which is still young) ranges from $500,000 to over $1 million for a small to medium-sized compost business.
How can you make your business more profitable?
Making the business more profitable is not a simple matter. Lowering costs is the primary way to increase profits. But, this requires you to find cheaper sources for compost raw materials and lowering your transportation costs. Buying land in low-cost and low-tax areas will also help the bottom line.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your compost business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a compost business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
The laws and regulations for a compost business are widely variable across jurisdictions. The US Composting Council compiled a resource to explain these complex regulations.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A compost business is generally run out of a large indoor facility. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a compost business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your compost business will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a compost business
Promote your business locally through fliers and business cards. Use direct mail advertising to boost sales. Go to networking events and talk to local government officials. Talk to local farmers about their soil needs.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Provide a good quality product, and this business should almost run on autopilot.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Compost Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
This business is perfect for individuals who are passionate about the environment and want to do their part to recycle organic materials for future use. Business owners who get into this business should also have a passion for learning about how composting works.
What happens during a typical day at a compost business?
A composting business collects recyclable garbage from the community. People either drop it off or the company goes and picks up garbage from local neighborhoods, similar to waste disposal services. The compost is then taken to the facility where it is dumped into various compost piles. These piles are managed and rotated to make sure that the composting process takes place and that there is an even distribution of compostable material.
What are some skills and experiences that will help you build a successful compost business?
Understanding the science and business of composting is a must. You must study composting cycles, what makes good compost, what to avoid and what to expect from your first few composting seasons. Not being afraid of dirt also helps. An ecological background isn't required, but helps.
What is the growth potential for a compost business?
Growth potential for this business depends a lot on local laws and regulations. Since composting deals with garbage, local ordinances may prohibit or limit the use of composts in your area. Or, they may require special licensing or permitting. Many governments are, however, becoming very liberal in allowing composting businesses to set up a composting field and run their business like any other normal business operation.
A composting business is usually limited in size based on the amount of land you can afford to purchase and maintain.
TRUiC's YouTube Channel
For fun informative videos about starting a busines visit the TRUiC YouTube Channel or subscribe below to view later.
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a compost business?
This business is easy to get going, aside from the high initial cost. Most businesses are looking for a low-cost way to get rid of their garbage. Flower shops, bakeries, and any other business that produces significant organic waste is a potential source for your composted raw material. As for customers, you should focus on selling to HOA neighborhoods, business that need high-quality soil, and local governments.
How and when to build a team
Your business will need a lot of employees in the beginning. Plan on hiring at least 5 to 10 workers and adding to that as your composting business grows.