While you are exploring the available growth opportunities, remember to evaluate costs versus benefits.
By Kevin McGinn
The waste collection industry had been steadily growing every year for the five years prior to the pandemic, but in 2020, there was a sudden drop due to the effects of COVID-19. The commercial sector felt most of these losses because they had no choice but to cancel their contracts with garbage collectors and waste haulers when many office buildings and stores closed. While solid waste hauling and collection businesses are also on investors’ radars, if your solid waste hauling business is young or just getting started, what is the best path forward for growth? We have been helping waste hauling business owners for 17 years, and have learned a thing or two about successful growth strategies along the way.
If you are interested in learning how to serve your customers’ needs better while building a successful and profitable business model, the following article outlines some of the most critical factors of success for solid waste haulers.
From Startup to 50 Trucks
A company cannot grow too fast while maintaining profitability. If your waste hauling business is on the verge of success, explore all your options for growth or you could run the risk of running out of cash before your business matures and becomes profitable and sustainable.
There are four main options to grow your solid waste hauling business from the start-up stage to the next level. Some companies use one strategy, while others combine two or more strategies to reach their growth and profitability goals.
#1: Speed Up Cash Flow
Many waste haulers find themselves limited by cash flow problems while they are trying to grow. If your payables are due before your receivables come in and you are running a tight margin, you will experience cash flow issues. Investopedia recommends the following strategies to improve your cash flow that apply to the waste hauling industry:
• Consider leasing equipment rather than purchasing equipment
• Offer incentives for customers to pay early
• Use electronic payments
• If your clients are other businesses with sizable invoices, you can use accounts receivable financing to speed up invoice payment
#2: Reduce Costs/Expenses
There are some cost reduction opportunities available to the waste hauling industry. The most popular option: investing in used rather than new equipment. Purchasing used equipment is an excellent way to reduce your capital expenditures. While new waste equipment comes with the latest and greatest features, it is possible to grow and expand your business with pre-owned equipment.
In addition, you may be able to find quality used equipment through a dealer or other waste company. Be sure to find a financing partner that is familiar with the nuances of financing used equipment and can move quickly, so you can take advantage of opportunities to acquire equipment when they arise.
#3: Raise Prices
Raising prices in a pre-pandemic marketplace may have been a good strategy, but today’s competitive marketplace may not support a price increase. If your fees are significantly lower than your competitors, you may consider it, but make sure you can afford to lose a few contracts and still come out ahead.
However, instead of raising prices during times when fuel prices skyrocket, consider adding a fuel surcharge to your invoices. Various industries have used fuel surcharges for decades, and many customers are used to paying them.
#4: Market Expansion/Industry Diversification
While many business blogs and coaches suggest strategies for growth by investing in technology, marketing campaigns and commercial real estate, very few know about the expansion and diversification opportunities available to the waste hauling industry.
In most cases, it is simple math: more equipment equals more waste that can be hauled, which equals more income. While large waste industry companies are known for growth through acquisitions, smaller companies can grow through equipment and service expansion. Partnering with an experienced waste equipment finance company will open opportunities that are not available through traditional lenders.
According to Business News Daily, managing and investing in growth is a risk reduction technique. More equipment will enable you to offer new services or increase your operating footprint, and the right lender will see value in your growth strategy.
Residential Market Expansion
If your business is built primarily on commercial contracts, look for expansion opportunities in the residential market. There are many opportunities to gain residential contracts; with the right combination of research, outreach and marketing, you can most likely acquire residential market share. Consider some of the following residential opportunities in your area.
Homeowner Associations (HOAs)
In many communities with HOAs, trash collection costs are included in the homeowner’s HOA fees. If the fees are not included, the HOA may still have a contract with one waste company to ensure that waste services are provided on the same day each week. Type “HOA Management Companies + Your City” into a search engine and give them a call. If you do not have any luck by phone, you can begin a mail campaign or reach out to the account managers for specific communities. (Many master-planned communities have websites where they share HOA company information).
Condos and Townhome Communities
Most condo and townhome communities have a management company that works with the waste management vendor. If you cannot locate the information for the company through an Internet search, check out the community area for a bulletin or message board. These boards are often placed near the community pool or mailbox station so that residents can see announcements and news.
Acquire a smaller company. In most cases, the contracts will transfer with the sale. There are a few national sites that list waste and recycling businesses for sale:
• BuyBizSell.com
• LoopNet.com
• https://www.bizquest.com
If the national databases do not yield results, type “Business for Sale + City, State,” and you will find local business brokers who are ready to help. Even if they do not have a business for sale right now, they are familiar with the local market and can keep you in mind if something becomes available. Also, place an in-bound call to one of your smaller competitors, they may be willing to sell.
Commercial Market Expansion
The commercial market has not completely recovered from the pandemic, but there are still opportunities for expansion. Instead of focusing on office buildings or other places that are likely to be operating at half capacity, focus on reaching out to businesses that are still busy:
• Hotels
• Automotive dealerships and garages
• Apartment buildings
• Retail stores
• Home improvement stores
Subcontracting for other providers is also an option to help you gain access to a commercial contract. There are not many national sites available, but these two are worth checking once per week for new listings:
• Sam.gov
• Wasteplace.gov
Finally, old-fashioned networking can help you find new commercial opportunities. Check BNI and your local Meet-Up site for networking meetings with fellow business owners. Some of these organizations have moved from in-person meetings to online meetings, so be sure to ask about virtual meetups as well.
Keep in mind that equipment needs for residential and commercial waste hauling are often different, so expansion into a market in which you are not currently servicing could require equipment acquisition. As you explore opportunities, be sure to explore the types of equipment needed. You can use your local equipment dealer or a knowledgeable equipment lender to help identify the various types of equipment needed and available.
Transfer Facility
If you are located in an area where the final disposal facility is far away or local transfer stations are few and far between, your business may consider building a waste transfer station. Look for planning committees and community leaders who are considering transfer stations. Begin researching state, county, and city websites to identify existing transfer stations and areas of need. While there may be several obstacles including permitting and finding the appropriate location, you can download the Manual for Decision Making from epa.gov to provide some initial insight.
Other Options for Growth Equipment Equity for Expansion
A popular alternative to traditional business financing is using the equity in your existing equipment to obtain a working capital loan. When you need cash flow for expansion, you can use the equity in the equipment as collateral for a loan and then use the funds for a down payment on new or used equipment, additional payroll, adding a new location, route acquisition or other business expenses.
Equipment Refinance
You can often lower monthly debt payments by refinancing equipment, providing improved cash flow to support growing payroll or other expenses.
Debt Consolidation
Debt consolidation combines all your loans into one payment. As a result, you will be able to make just one consistent payment per month. This can free up time for your accounting or bookkeeping team, lower your overall monthly payments and free up your existing lines of credit.
Offer Services for Trending Markets
Recycling and sustainability initiatives continue to provide opportunities in 2021; they are a significant part of the solid waste hauling industry. At the local, state and federal levels, efforts push for more recycling and better sustainability from industry leaders. From alternative fuel waste collection trucks to AI (artificial intelligence) technology and new collection sites for recyclable materials, the solid waste hauling industry is positioned to grow and expand while making headlines as the stewards of the sustainable waste management movement.
Profitable Solutions
All the options listed previously can help grow your solid waste hauling business, but you will need to take some time and research the local marketplace and the competition. While you are exploring the available growth opportunities, remember to evaluate costs versus benefits. It is easy to shy away from big-ticket items like equipment, but equipment can lead to growth rates that would otherwise be impossible in many cases. Fortunately, some experts can steer your company towards profitable solutions that make the most sense for your business, market and service offerings. | WA
Kevin McGinn is Senior VP of Commercial Credit Group Inc. He helped co-found the company in 2004 and heads up the national waste equipment financing division. He has worked in equipment financing for nearly 30 years and brings decades of equipment knowledge and industry expertise to his customers. Kevin can be reached at (704) 731-0031 or e-mail [email protected].