Counting the Cost of Business Before You Start


There has been a lot of media chatter recently about how consumer plastic recycling doesn’t work. In addition, we have seen countless stories over the last five or six years detailing municipal recycling programs that were shut down. The reason is always the same: the programs are not economically viable. They lose so much because they cost too much.

The state of the recycling industry illustrates a fundamental principle of successful business. That principle is counting the cost before you get started. Municipal recycling programs are not necessarily businesses per se, but the same economics apply.

We do know that recycling can work under the right circumstances. We know because we have successfully recycled glass, paper, and wood for decades. And don’t forget the private companies like Tennessee-based Seraphim Plastics, companies that have proven that commercial and industrial plastic recycling can be profitable. They know that success starts with counting the cost.

Failing for Lack of Money

Any business expert will tell you that an entrepreneur needs a sound business plan in place to maximize the chances of success. Though there is no hard-and-fast rule for what a business plan should look like, common sense seems to dictate that funding sources are addressed in any such plan.

That being the case, the following statistics on startup failures are somewhat surprising:

  • 90% of all startups (globally) eventually fail
  • 82% of the failures are due to lack of finances
  • 79% of all startups begin with insufficient funds
  • 25% of all startups never get the funding they need.

Data also shows that most startups are launched with less than $5,000 on hand. Such a small amount of money isn’t going to get too far.

The Cost to Run a Business

Before an entrepreneur ever launches a new company, it is in their best interests to estimate how much running their business will likely cost for the first 2 to 3 years. Year one tends to be a money loser. Year two is the transition between losing money and breaking even. By the end of year three, a business should be breaking even and working toward making a profit.

Without sufficient funds to cover three years expenses, the chances of a startup succeeding are slim. A company either needs to have sufficient financial resources in the bank or be capable of generating significant revenues right from day one.

When Business Costs Too Much

The municipal recycling business would be a perfect poster child for what happens when costs are not accurately estimated against revenues. In plain English, municipal recycling costs too much to make it profitable. The biggest hindrance for municipal recycling is sorting. Sorting is time-consuming. Sorting is labor intense. Sorting is expensive.

Any business is doomed to failure if it costs too much in relation to generated revenues. You don’t start a business with the goal of losing money. Granted, you may lose money in the first year or two, but revenue needs to exceed costs at some point for a company to stay in business.

Entrepreneurs Have to Count the Cost

It’s not like counting the cost is a foreign concept. Quite to the contrary, it’s something we’re all familiar with. We actually use the phrase quite frequently in English. We know that counting the cost plays into buying a house, starting a family, etc.

The majority of global businesses eventually fail. Most of those failures are due to insufficient funds. Entrepreneurs who hope to make it big in the business world need to do their due diligence in counting the cost before they get started. The risks are too high otherwise.