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The Entrepreneur's Guide to Computer Recycling: Basics for starting up a computer recycling business in emerging markets
PC Recycling Guide
Cost Analysis

Before launching a business, the entrepreneur must establish a budget, identifying the various costs the company will have to take into account. There are two parts to the budget: a start-up budget, which gives the breakdown of the one-time costs necessary to set up a recycling centre, and the operating budget, which details the on-going costs of running the centre. This analysis will also enable the entrepreneur to plan the activity and to establish the prices, in order to be profitable and able to sustain the centre over the long term.

Start-up budget

Investments

The start-up budget comprises all costs necessary to launch an activity. It includes spending related to capital and to the creation of the legal structure, but also all the expenses and investments essential for the opening of the premises, i.e. renovations, purchase of equipment and furniture, and guarantees paid to phone and electricity providers.

Contributions in cash and in kind

The entrepreneur and his partners have several possible ways to contribute to the capital: they may put money into the business thanks to personal loans, microloans, aids and grants. These are contributions in cash. The entrepreneur and his partners may also provide equipment: vehicles, materials, furniture, premises, etc. These are contributions in kind.

Operating budget

The operating budget includes all recurring expenses, such as rent, salaries, insurance and supplies. In the case of a pilot project of creating a recycling site, conducted by the CFER , the budget was distributed as presented below.

Example of budget distribution

The distribution of costs varies from site to site, but this chart gives a rough estimate. It is important for the entrepreneur to assess these costs before starting a business, in order to determine the break-even point of the company.

Running costs

Running costs comprise fixed expenses (administration costs) and variable expenses (operating costs). Generally, administration costs account for 13% to 15% of the global expenses. They include renting costs, standing charges, telecommunication costs, and a part of the salaries devoted to the management of the company. Operating expenses include maintenance costs, heating and electricity charges, the amortization of equipment, etc. To estimate these costs, the entrepreneur can try to find out what another business or organization of a similar size pays. It is best to over-estimate these costs at first.

Collecting costs

Expenses devoted to the collection and transport of equipment account for a large part of the charges borne by the company. However, these expenses vary greatly from one enterprise to the other, as they depend mainly on the type of supplies, but also on the region, the collection type, the price of fuel, the distance of the collecting round, the volume of material collected, etc. In some cases, there may not be any collecting costs, if clients or partners bring the equipment directly to the site. Therefore, assessing these costs before starting the company is a complex task. It is recommended these costs be monitored carefully once the activity is running: the company can save a substantial amount of money at this level, by optimizing collecting rounds or by renting trucks to reduce fixed expenses, for instance.

Labor force and handling costs

Adding up all the employees’ monthly salaries is enough to know the global amount of labor costs. The hardest task for the entrepreneur is to evaluate the number of employees he needs, according to the production volume of the company. For instance, the entrepreneur has to estimate the number of computers a technician can dismantle in one hour. This ratio goes from 4 computers an hour to more than 20, if the technician is competent and is used to working on the same type of equipment.

Treatment costs

Usually, refurbishing and dismantling operations generate income when the equipment and subsets are resold. However, some components (such as faulty CRT screens) and polluting residue represent an added cost, since in most cases the enterprise will have to pay a service provider to take care of the collection of this material. The entrepreneur must find the most profitable and environmentally sound way to get rid of this material, in order to reduce the company’s expenses. Before the collecting stage, the entrepreneur should negotiate the logistical and financial management of the expenses devoted to the final treatment of waste with the client.

The entrepreneur is advised to consider the treatment of ultimate waste as soon as the business is set up. To this end, he must study beforehand the various techniques available and the offer proposed in his country. He may also examine the possibility to let his clients and suppliers take care of the treatment of ultimate waste. In some cases, if the entrepreneur cannot have waste treated in his own country, he may call on to foreign importers who will carry out the treatment of this waste.

Income

Refurbishment is the main source of revenue. The sale of unusable components to dismantlers or raw material recovery firms is only a secondary source of income. If the company cannot obtain enough used equipment for refurbishment, it will be financially at risk. In this case, the entrepreneur can establish partnerships with the local authorities, to compensate for losses: the authorities will pay the recycling company as much as they would for the burning or dumping of waste.

Before starting up, the entrepreneur should be able to secure 6 months of supply. This will ensure the durability of the future enterprise. Ensuring supply is more important than all the various contributions from the entrepreneur or his associates.