How To Start a Junk Removal Company: Part 2
Junk Removal Financial Projections During Your First Three Years
The junk removal industry offers a terrific opportunity for those who are hard working and motivated to succeed. You will have the unique opportunity to become financially independent in three years or less. That’s right. You can achieve financial independence in three years and then work part-time to maintain it.
Before continuing this article, we suggest that you download the accompanying spreadsheet linked here. This spreadsheet outlines your projected start up investments and the first three years of P&L, cash flow, and other helpful figures, completely free for your use!
Note that all financial projections presented are educated estimates based on the experiences of our existing customers and that of our own junk removal business in North Carolina. Your actual financials may vary greatly. Much of the success will be determined by the skill of the entrepreneur and the market in which the company is located.
All data in this article and accompanying video assumes starting the business in March, which is usually when business picks up after winter. You can start any time of the year, but in most areas of the country, you’ll see a slowdown in December and then an even larger slowdown in January and February.
The number of jobs and price per job will significantly alter the financial projections presented here. You’ll need to keep a close eye on your actual results and adjust your projections accordingly.
How much money do you need to get started?
Take a look at the first tab in this spreadsheet called “Start Up Costs.” When we talk about start up costs, we are going to include the JRA business package, which is our offering to provide you the training and materials you’ll need to succeed. The package is $15,000 plus travel costs of $1,000 – $2,000. If you aren’t going to make that investment then you’ll need to remove those figures. I will, however, just about guarantee your income will be significantly lower if you do not go through the training program.
The amount of cash you will need to build a successful junk removal company ranges from $42,398 to $85,049. The typical amount we suggest is $55,798, but this can vary depending on your specific situation and your area. These figures include a cash reserve of $15,000 to $30,000.
There are many costs you’ll face when you start your junk removal business. These include: a down payment on a truck or the money to buy it outright; truck tools and initial inventory such as trash bags, gloves, dust masks; iPad Minis for the truck team; Quickbooks bookkeeping software; down payments for insurance premiums; uniforms; initial marketing materials; an initial hiring ad; website and logo creation; professional/Legal fees for an attorney and accountant; and the smartest investment of all—the JRA business package.
Additional optional start up costs will be truck graphics, office equipment and supplies, and rent for an office space.
Tip: Keep truck graphics simple and office supplies minimal. Often times, you can finance the cost of graphics to preserve cash. If you already have a computer, printer, and internet, you are basically ready to run your office. Don’t go crazy stocking up an office. As far as office space, we recommend keeping it minimal. Storage facilities make an excellent choice for truck and employee parking as well as storage for inventory and tools.
The three start up costs that could vary the most:
- Professional fees: Professional fees generally won’t be much more than $500. Unless you have complicated legal requirements, use Rocket Lawyer or US Legal Forms for this.
- Business permits: Business permits requirements are an area you will need to research closely when you are determining your cost of starting a junk removal business and vary significantly depending on your location.
- Insurance costs: Insurance costs vary tremendously from state to state. This is specifically true for automobile insurance and workers’ comp insurance. Contact a few independent insurance agents to get quotes on Workers’ Comp, Automobile, and General Liability early on in your evaluation process.
- Travel expenses for JRA training: When you are ready to come to us for training, you can bring yourself and one other person. Travel costs will vary depending on how many people you bring. If you are planning to have a Manager from the start, they should definitely be included in this training.
If you have extra cash and want to know where you should spend it to give yourself an extra leg up, here is a prioritized list for you to consider:
- Put it in the bank! The first thing unquestionably would be to park the extra cash in a bank account. Keep the full $30,000 as a cash reserve. That way, you won’t hesitate to hire a few people and keep them busy. If they aren’t doing the jobs, they are putting out yard signs, door hanger flyers, or volunteering at a donation center to help get the word out about your business.
- Create a marketing budget. Your second priority is buying more marketing material. Get extra yard signs, door hanger flyers, and invest in other marketing efforts.
- Branded uniforms and clothing. The third thing to pursue with any residual cash funds are your uniforms and clothing. In additional to coats, hats, and shirts for your truck team, also think about getting some shirts with your logo on them. It’s amazing how much business can be gained by wearing a company shirt to networking events and outings.
- Website SEO. The fourth optional item is starting Search Engine Optimization (SEO) on your website in month one. The sooner you rank well organically, the sooner you start getting jobs from unpaid advertising.
- Paying for a truck in full. The final thing to consider is buying your new truck for cash instead of financing it. This is pretty rare, so that figure isn’t listed in the start up cost checklist. However, for the individual flush with cash, you could pay cash for your truck to stay debt free, help out with your monthly cash flow after opening, and save money long term on interest payments.
I would not recommend spending money on anything else, even if you have more, not even on an office/warehouse space. Even if you plan on selling and recycling items, you can use a storage facility. There is no monetary benefit to having an office/warehouse space before you open, so we do not list it as an option on start up costs.
Having extra cash gives you an immediate advantage with your junk removal business. Overspending does not necessarily correlate with faster growth. Spend the money where it needs to be spent and conserve cash for when you’ll be ready to purchase another truck, repair a truck, or hire more people.
The spreadsheet you downloaded outlines the Profit and Loss and Cash Flow statement summarized by year through the third year, and then a more detailed breakdown by month for the first 24 months. Let’s go through some of the most pertinent questions you might be wondering about as you look through this information.
When can I actually pull some money out of this business?
If you’re going to be on the truck full time, it’s recommended to pay yourself the same hourly amount as you do your truck team members from the very start. If you have the time you may stay on the truck for an extended period to help cash flow. From the work you do on the truck you could expect to earn $2,000 to $3,000 a month plus tips.
If you need to begin taking money out of the business to pay yourself a management salary, it is generally best to wait until about Month 15. A reasonable salary to start taking at that point would be around $4,000 a month. You could take more if needed. But remember, the more cash you can keep in the business, the better. You will be needing new trucks soon and a hefty repair bill might be just around the corner at any time.
When can I recover my initial investment?
You may also be wondering when you can recoup the upfront investment you made. If you came in at the lowest start up cost of $42,398, you will have gotten back to square one by Month 17. If you were a big spender at $85,049 it will take you until Month 22 to recoup your investment. This does not factor in a management salary. The general rule of thumb here is to leave at least 3 months of operating expenses in the business.
When should I add new trucks?
Depending on your market you can generally expect $35,000 a month income off of one truck. This allows for no downtime and very long hours every day. Figure it will take you about three months to get a new truck built. Plan on ordering one when you get to around $25,000 in income. This will likely occur around month six and you’ll hope for the truck to be ready for usage in month 9. Subsequent trucks should be ordered around each additional monthly increment of $25,000 of income.
Likewise, when do I hire additional employees?
When hiring people, plan on working your guys around 30-35 hours each week and make sure to keep one more guy than you need. That extra guy could be yourself. You’ll notice payroll costs are higher in the first year. Have your guys putting out marketing material to make sure they get all the hours they need. But don’t skimp on this. Be sure to have people so you have a quick turnaround time. Beyond the first $24,000 a month in revenue, you should plan on hiring an additional person for each $8,000 a month you make. There is some wiggle room in this and it is not exact. Sometimes it’s better to pay Overtime rather than bring on someone new. Often it’s better to pay a bit of overtime than have to pay several guys when no income is coming in.
Year 1: Your year 1 P&L shows a measly $6,279.04 profit. Cash flow in year 1 is a loss of $9,602.96. Your advertising and labor costs are higher than they will be in subsequent years due to the need for employee redundancy along with gaps in jobs. Starting about Month 14 you will have enough jobs to keep people consistently busy so downtime will be reduced. Labor costs could sneak up a few percentage points in December through February but overall should stay consistently right around 25%. Traffic and wait times at landfills are two geographical features that could increase your labor costs. And insurance costs are highly dependent on your location. You may even end up being a few percentage points higher on insurance than what’s shown on the sample P&L. At roughly Month 6 we recommend starting SEO on your website as this will pay dividends in the long term. This could be done sooner if you have additional money for investment.
You remember we mentioned needing $15,000 to $30,000 in reserve cash? $15,000 is cutting it close. You will likely have used up the full $15,000 reserve plus some by Month three, but you have been paying yourself the hourly rate to be on the truck through this point. If you are in the $15,000 reserve cash club you’ll need to work more hours on the truck and probably pay yourself a bit less than if you had the $30,000.
Year 2: In year two, net income increases nicely to $98,185.50 with cash flow of $76,653.50. We project you getting through year two without needing to add a third truck. However, it might be wise to plan on having one delivered early December or so in order to reduce your tax liability for the year.
Year 3: Year three increases even more to a net income of $201,283.80 and cash flows of $166,622.80. This doesn’t, however, include paying a general manager. A third truck will likely be received in March of this year with the first payment due in April. We would also expect you to transition from a storage space to a more official office/warehouse space about halfway through year three.
When can I achieve financial independence?
The official definition of financial independence is when you have enough income or savings to live the rest of your life without having to work or rely on others. We have a hybrid interpretation here which is when you have an income that doesn’t rely on you working all the time. Your job or business doesn’t control your schedule and your life, you do! The answer to this question is completely up to you.
If you are someone who lives a fairly conservative lifestyle, financial independence could be achieved somewhere in year three. If the cost of your manager is around $60,000 or so a year then you could potentially pull out as much as $106,622.80 per year. You would only need to be working roughly 20 hours or less a month. Since you have a manager in place, most of your work at that point will simply be weekly, quarterly, and annual meetings with your management team as well as reviewing financial documents. With this income, you could take some moderately priced vacations from time to time and have a tremendous amount of free time. And the great thing is that if you have a strong manager and you provide proper leadership your income will continue to grow. If you have richer tastes it will require you to continue to grow the business. The nice thing is junk removal can be scaled up to a very high income. Simply determine the number you think you need to be financially independent and do the math. Then make the necessary investments to get you there.
As you can see, it is possible to build a junk removal business to be a money-making and freedom-making machine. Freedom to take off to go to your kid’s baseball game, freedom to travel when you want, freedom to truly not be a slave to your work is very possible. The numbers we quoted should not be misconstrued to be a guarantee. A lot of hard work and smart choices will need to be made to see these numbers come to fruition. But the payoff for that effort can be tremendous.
Once you’ve reviewed the spreadsheets, you’re likely going to have questions. Feel free to reach out to me here at JRA. Fill out our contact page at junkra.com and we’ll get a call scheduled. Let’s put together a plan to make your business a reality.
Additional Resources on Junk Removal Financials:
Spreadsheet: JRA’s Free Three-Year Financial Projections