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Chapter 2: Recycling Business Planning

Chapter 2 contains:

A good business plan is important to obtaining financing for a new or growing recycling company. A written plan can help an entrepreneur explain to a financier how a loan or investment will be repaid and rewarded. In addition, the plan can be a document that the management team, advisers, board and staff work together to develop. The business plan can continue to provide strategic focus and coordination for the marketing, operating, financing and staffing activities of the growing business. While some recycling entrepreneurs have been able to succeed while making decisions based only on their business instincts, having a written plan can help to ensure sustained and continued success.

The business’ founder, owner or chief executive should write the business plan, with input from other company team members. Consultants, government agencies and software programs can provide suggested templates and advice on different sections. However, just as the founder “owns” the company, he or she should “own” and take responsibility for writing and carrying out its plan for success. By developing the plan, the entrepreneur can make some of the potential mistakes on paper, instead of in practice. The plan and its projections can become yardsticks for measuring the progress of the company.

Finally, the business plan should be a living document, in a loose-leaf notebook and computer files that are revised annually or more frequently as circumstances change. Staff hiring, fixed asset purchases, marketing activities, new facilities, financing actions and budgets should all be consistent with the business plan. If the entrepreneur is making decisions that are out of step with the plan, he or she may indeed be on the right track, given a change in the company’s environment. However, the discipline of going back and revising the plan will help to point out unforeseen effects of a change in company strategy.

Ask for advice about your business plan from your accountant, lawyer, business partners, board members and consultants. Several books and software packages have been developed to help entrepreneurs in writing their plans. A few are listed in the Resources section at the end of this chapter.

Provided below is a brief overview of the important sections of a recycling business plan and some of the questions each section should answer. Depending on the size, type and stage of a business, some sections of the plan can be more or less extensive. Developing the business plan should not be seen as a big task separate from starting or running a business. Rather, developing the plan should involve compiling the market, management, operational and financial information necessary to the business into one well-organized document.

The remainder of this chapter is written as if addressed to an entrepreneur who is compiling and writing the business plan for his or her recycling company. The business plan sections are divided as shown in Figure 2-1.

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Executive Summary

In the executive summary, you should concisely communicate the nature of your business and why investors or partners should want to be involved. Investors sometimes receive stacks of business plans each week. You have to quickly catch their interest and convince them that your company deserves a second look.

Write the executive summary after all other sections of the plan are completed, highlighting:

Figure 2-1
Recycling Business Plan
Sample Table of Contents

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Company Mission

What is your business? You should be able to answer this question succinctly enough to pass the “elevator test.” That is, can you tell an investor or banker what your business is while you are riding the elevator to his or her office?

Remember that just being in the recycling or environmental business is not enough. Indeed, for some financiers, your being a recycler may initially be a drawback. Instead, explain why your company is or will be successful with its customers. For example,

Many nonprofit organizations develop a mission statement to provide guidance for their board of directors and staff and to ensure that decisions are consistent with their charitable or educational mission. Private businesses may not think a mission statement is really important-after all, isn’t the real mission just to be profitable? Yes, but most businesses achieve profitability by following a founding vision or mission that provides a unique service to their customers and society. Most small business owners don’t put this in writing, but they intuitively run their business in concert with their purpose, vision or mission.(1)

Writing out the mission statement allows for investors, employees and even customers to help buy into the excitement of the founder and entrepreneur. An example could be:

Clean and Green’s mission is to provide excellent and inexpensive janitorial and recycling services to office property managers thoughout the New York metropolitan region. We make offices clean and green by providing efficient, integrated services that ensure that all discarded paper, cardboard, bottle, can and organic materials are recycled or composted. By using only nontoxic, natural cleansers, we ensure that each morning, our clients arrive in offices that are clean and healthy work environments.

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Company Overview

The company overview can include basic information on:

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Management Team

When equity investors are asked what is most important in their decision to invest in a company, they usually start off with the people-the owners, founders or management team. Indeed, as noted in Figure 2-2, some of the primary reasons that individual investors reject deals involve management. For bankers and lenders, also, the company’s leadership team and its track record are critical in deciding to make a loan.

Figure 2-2
Deal Rejection Reasons for Individual Investors(2)


Rank: Reason:
  1. Venture’s chances for growth seemed limited
  2. Inadequate personal knowledge of firm’s principals or key personnel
  3. Firm’s management lacked experience or talent necessary for success
  4. Proposed value of firm’s equity was unrealistic
  5. Did not coincide with Angel’s long-term investment objectives
  6. Venture concept needed further development
  7. Not enough time for adequate appraisal
  8. Insufficient information provided
  9. Unable to assess technological aspects

Many business plans try to address the strengths of management by providing pages and pages of resumes. Although resumes are important, and can be included in an appendix, it is more vital to give the reader a feel for yourself and your team and your commitment to the business. Try to answer the following questions in a unique and persuasive manner:

If you have not recruited and employed all of the managerial talent you will need to carry out the next immediate phase of your business plan, explain your plan for doing so. That is, assume that you are planning to market a recycled-content retail product to mass merchandisers and do not yet have experienced marketing staff. Then, lay out a plan for hiring a marketing manager with the appropriate experience or for contracting for these marketing services. Similarly, demonstrate that you have or will recruit and pay for the necessary expertise in the finance and operations areas.

Finally, how about the CEO? Who will make sure the business meets and exceeds business plan and financial targets? If you are the founder, inventor or visionary for the company, don’t necessarily assume that you should always be the chief executive officer. Often very different personalities and skills are needed to have the vision to invent a unique product or service and to manage a company’s successful growth. If you are initially successful, your company can outgrow your talents.

Take a management and vocational aptitude test and objectively assess whether you are the best person to lead the company. If not, recruit a CEO or business manager with the requisite skills, or show in the business plan at what stage such talent will be recruited. Even if it means giving up some of your ownership stake in the company, such humility and realism in assessing your strengths and weaknesses can help to ensure long-term success for a venture.

Succinctly communicating the skills, experience and motivation of the founders and management team does not just happen in the business plan alone. When seeking investors or lenders, nothing can substitute for direct personal contact. A young entrepreneur whose experience looks thin on paper may have such drive and determination in person that she or he inspires an investor to become a partner.

Referrals are essential to widening your realm of contacts. Always try to have a referral source when contacting a financier, rather than making a cold call. Venture capital partners and active individual investors often get so many business plans, that they do not give them a second look unless the company has been referred to them by a reputable attorney, accountant, entrepreneur or investor.

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Marketing Strategy

After your management team, the market for your company’s products or services is the most important concern for many investors. You may be tempted to focus on a unique technology or service strategy you are using, without paying enough attention to how you are serving your customers. If you have invented an automated container sorting device that is technically elegant, but too expensive for processors to purchase, you will not have a successful business. Rather, the focus of your marketing and business plan should be on the unique value you provide to your customers, i.e., a cost-effective system for generating marketable commodities from commingled recyclable streams. Your marketing and business strategy should be built around providing your current and new customers with a unique value that they cannot get from your competitors.

Some of the specific questions the marketing section of your business plan should cover include:

These questions are just a few of those addressed in thorough market analyses and marketing plans. These sections can address more detailed issues of marketing and sales strategies, distribution channels, advertising and promotions, and public relations. As the company grows, management will need to continue to develop its marketing expertise and planning.

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Operations Design

Once you have told your reader who you are, what you do and to whom you are going to sell, the next question is: Can you do it? That is, can the company deliver the products and services to the customer on time, at the right price, in the quantities desired and of a quality that meets or exceeds the customer’s expectations?

Managing a growing recycling operation requires expertise in personnel, equipment, facilities, information systems, shipping and materials flow. Your plan should demonstrate that your team has thought through what will be needed to meet the anticipated customer demands projected in the marketing section. If you have successfully managed complex operations before, financiers can be assured that you can do so again. If you have not, your operations section must assure them that you have anticipated the challenges, and will be tapping into appropriate expertise to ensure that products and services are produced within projected budgets.

Readers will be looking for answers to the following questions about your new or expanded operations:

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Financial Overview

Finally, you need to tell the story of your company in numbers. Some business plans go overboard in the financial section, printing page after page of spreadsheets with little explanation. It is more important that the reader understands the assumptions behind your financial projections. Your marketing section should explain how you arrive at your sales projections. Likewise, your operations section should describe what is behind the operating expense budget. Make sure to reiterate key assumptions or refer the reader back to the pages where they are explained in more detail.

If your company has historical and current financial statements, be sure to include them. Note whether they have been prepared, reviewed or audited by an outside accounting firm or prepared internally. (If you have not yet done so, hire an accounting firm to assist in the preparation of your financial section and move toward having an annual financial audit done on the company.)

Figure 2-3
Business Plan Sections and Their Relative Importance to Individual Investors(3)

 Rank: Business Plan Information:
  1. Clear description of proposed financing needed from start to maturity
  2. Marketing plans, including segment on market sought or controlled by company, data on market size and characteristics, present and potential market competition, and future market strategy
  3. Summary statement of the purpose and goals of the enterprise
  4. History of the firm, financial statements and backgrounds (resumes) of key personnel
  5. Clear description of the technical aspects of the proposed project
  6. Direct personal knowledge about firm’s principals and key personnel
  7. Names of principal suppliers and customers


“Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most. Growing bodies need to be fed, and a business that grows fast devours cash. You have to make constant investments just to keep even with it. This is totally predictable, so getting caught in a cash crunch is totally unnecessary.”(4)

Peter Drucker, Clarke Professor of Social Science and Mgmt., Claremont Graduate School

Your projected financial statements should cover at least the time period for which you are seeking a loan or equity investment, and illustrate how these capital infusions will be repaid. The statements should include:

Be sure to explain how each statement is derived such that the anticipated results will be achievable by the company. The cash flow statement, particularly, will be essential in predicting the amount of outside financing you will be needing to meet your start-up or expansion goals. Some of the questions your financial section should answer include:

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Contingency Options

For the entrepreneur and investor, it is important to think through what may go wrong. As an entrepreneur, you are probably by nature optimistic about the prospects for your business and may have been a bit generous in even your most “conservative” projections. The contingency section forces you to think about the worst case and how you would respond to save the business and safeguard investor or creditor capital. Some risks you should consider include:

Develop creative and viable responses to the most likely setbacks your company could face. In so doing, you can demonstrate that in the negative scenarios you may be able safeguard investors’ principal, while in the positive scenarios financial partners will share handsomely in the company’s success.

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Confidentiality

Entrepreneurs are often concerned about giving away proprietary information about their companies in a business plan. Many investors will likely be hesitant to sign a confidentiality agreement before looking at your business plan. Do not reveal any specific technical or competitive information in your plan that would weaken your business if a competitor obtained it. If revealing such information is necessary to persuade an interested investor to consider your company, it can be included later in an offering circular for which the investor must sign a confidentiality agreement to obtain.

The title page of the business plan can state “This document contains confidential and proprietary information belonging exclusively to [Company],” and the further disclaimer “This is a business plan. It does not imply an offering of Securities.”(5) The business plan copies should also be numbered, so that you can track their distribution and limit circulation.

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Conclusion

Wrap up the business plan by reminding the reader why your company is a good partner for them. Touch on all of your key competitive strengths and invite the reader to contact you to talk further and to arrange a meeting.

Figure 2-4
What Investors Look for in Companies(6)

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Business Planning Resources

Check your community or business school library for books on business planning and entrepre-neurship. Some useful books to look for include:
NOTES:
  1. For an eloquent description of mission-driven businesses, see Growing a Business by Paul Hawken, 1987, Fireside, Simon & Schuster.
  2. Responses from nationwide survey of individual investors as reported in Gaston, Robert J., Finding Private Venture Capital For Your Firm, John Wiley & Sons, 1989, p. 91.
  3. Gaston, Robert J., Finding Private Venture Capital For Your Firm, John Wiley & Sons, 1989, p. 85.
  4. Drucker, Peter, “Flashes of Genius,”; Inc. Magazine, May 21, 1996, p. 30.
  5. Franklin, Burke et. al., Write a Winning Business Plan-Reference Guide for BizPlan Builder, 1995, JIAN Tools for Sales, Inc., p. 1-3.
  6. Kirkpatrick, David, Recycling Venture Forum Study, Final Report, June 1995, KirkWorks, sponsored by US EPA, the Northeast Recycling Council, the National Recycling Coalition, and the New York State Office of Recycling Market Development, p. 14.

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