How to Start a Tree Removal Service

Posted on March 24th, 2012 in How To Start a Business by admin

How to Start a Tree Removal Service

 

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Introduction

 

First, when you are starting a tree removal service, it is imperative that you make sure that you have all applicable licensure and registrations in place so that you are able to act as an agent on behalf a third parties when it comes to making sure that you can legally remove trees and provide incidental landscaping services. Additionally, you are going to need to make sure that you have all of the capital in place in order to launch your business operations. We are going to discuss your tree removal service capital structure below. After you have determined the answers to these matters you must examine your ability to immediately develop relationships with individuals and business clients (primarily general contractors and landscape contractors) in your area. In many instances, most people have had extensive experience in the landscaping industry before they start their own firm. Additionally, these individuals have extensive contacts among businesses, such as landscape contractors and municipal agencies. One of the nice things about operating a tree removal service business is that their revenues are immune from negative changes in the economy. This is wholly due to the fact that people are going to continue to have dangerous trees that need to be removed (including due to storm damage). As such, you will be able to easily obtain the capital that you need, either from a bank or private investor, due to the fact that these businesses not only have immunity from negative economic changes but they also generate extremely high gross margins from the tree removal services that they provide. We are going to continue to discuss the economically secure nature of tree removal services as we progress through this document.

 

 

 

 

Incorporation

Second, you are going to need to incorporate your business. Again, only your attorney can determine the appropriate corporate structure that may be applicable to you as it relates to your tree removal service business. In many instances, you will most likely register as a limited liability company, or LLC, in the state in which you intend to do business. If you own a business with a large number of people then it may be in your best interest to register the business as a limited liability company rather than a stock corporation as you will have a tremendous amount of flexibility as it relates to how the business is operated on a day to day basis. Additionally, your corporate entity will protect you from any liabilities that you may incur as a result of operating a tree removal service.

 

Once you have incorporated your business, you will need to receive a Federal taxpayer ID number (commonly known as your “FEIN”) that will identity your business to the Internal Revenue Service. Typically, your accountant or your attorney will include this as part of the incorporation service. However, you can always call the IRS or go onto their website in order to immediately receive your taxpayer ID number. This should be done within days of incorporating your business so that you can begin to apply for the necessary business licenses that are required of you coupled with the fact that you are going to need to open a corporate bank account.

 

Business Financing

After you have determined the corporate structure of your business and have acquired the necessary licensure to launch you operations, it is time to find capital. Typically, most tree removal service companies require a minimum investment of $100,000 to $150,000 depending on the number of tree removal trucks and related equipment that you will be using in conjunction with your business operations. In the business plan, we made the assumption that two trucks would be purchased from the onset of operations. In most instances, you may be able to obtain a loan for all of the tangible assets that you will own. Banks, lenders, and private investors love to place money with tree removal services due to the high gross margins generated by these businesses coupled with the large amount of tangible assets that you will be purchasing (primarily in the form of vehicles). It should be noted that one of the alternative methods of receiving the capital that you need in order to launch your tree removal service is that you can use lease financing for the tree removal vehicles and equipment that you need to acquire in order to launch your business operations. You should work closely with your accountant to determine whether or not lease financing would make better sense for your business from a financial standpoint. This should be one of the foremost facts that you highlight as it relates to raising capital from a private investor in regards to starting a tree removal service. On a side note, if you are raising capital from a private investor then it may be in your best interest to work with an attorney to determine which documents that you will need in regards to this matter. In many instances, especially if you are raising capital from a number of private individuals, then you will need to have a private placement memorandum.

However, it should be noted that you intend to work for yourself then the amount of money that will be required of you will be substantially less. As we discussed in the business plan, we made the assumption that two vehicles would be acquired immediately at the onset of operations. If you intend to work as an independent contractor then you can expect that the costs of launching your business can be as low as $50,000 depending on whether or not you intend to purchase a new tree removal vehicle and equipment for your business. Additionally, it should be noted that if you intend to use independent contractors as your additional tree removal assistants and operators rather than employees then you can continue to reduce the costs that are associated with starting this type of business. However, if an independent contractor works for you on a full time basis then they may be considered formal employees according to state tax and federal tax rules. As such, it is important for you to consult with your certified public accountant as it relates to the hiring of employees on an independently contracted basis.

Returning to our discussion regarding raising capital, a Private Placement Memorandum (often referred to as a PPM) is a legal document that is often used in the venture capital raising process. It is the legal and binding agreement between a business and a potential investor. When looking for venture capital, you may or may not be required to have a private placement memorandum. A PPM not only serves the contact between an investor and a business, but it also apprises a potential funding source of risks related to the business, the intention of how investment funds will be used, the governance of the business, and other legal issues that need to be addressed when raising or looking for venture capital or other forms of equity capital.

Usually packaged with the private placement memorandum is the subscription agreement. In situations where capital is being raised privately, this document serves as the signatory portion of the investment agreement. In some situations, the subscription agreement may have certain questions that need to be answered by the funding source participating in your capital raising. This is to ensure that the individual or organization participating in the financing meets the required standards set forth by the SEC to make the investment. Again, only a qualified attorney can assist you making these determinations and guiding you through the capital raising process.

Tree removal service angel investors are easy to come by due to the fact that there are very few risks associated with operating this type of business. The need for tree removal services (as we discussed above) remains strong in any economic climate. As such, when you are finding an angel investor for your tree removal service you should find minimal issues among individuals that want to provide capital for this type of business. As always, you should have appropriate legal counsel in place when you are finding angel investors. These advisers will be able to effectively assist you when it comes to remaining within the letter of the law regarding the sale of securities as well as helping you determine a fair valuation for your new tree removal service. As such, you should thoroughly stress the economic stability of your tree removal service business through any documentation that you have developed that will be presented to a potential private investor. You should also thoroughly discuss the highly tangible assets that will be held by your company as you progress through your business operations.

A certified public accountant as well as an attorney can assist you substantially in determining the valuation of your business before it launches given the market in which you intend to launch your tree removal service coupled with how much equity you will need to give up as a result of raising capital from a private investor. As such, you should thoroughly stress the economic stability of your business through any documentation that you have developed that will be presented to a potential private investor. You should also thoroughly discuss the highly tangible assets that will be held by your company as you progress through your business operations.

As it pertains to the type of investors that can invest in your firm, accredited investors are typically high net worth individuals that are seeking to make substantial capital investments into small and medium sized businesses within their respective markets. As such, you should always ensure that the individual or firms that you deal with fall under the definition as provided by the Securities and Exchange Commission. At this time, an accredited investor is an individual with an income of $200,000 per year or more (with the expectation that they will make a similar income in each of the next two years) or a married couple with an income of $300,000 per year with similar expectations. An exemption to the income rule is that these entities have a net worth of $1,000,000 or more. In the event that a business, bank, trust, or other business entity provides your business with capital then they need to have total assets exceeding $5,000,000.

Again, you should consult with your attorney in regards to the rules that regular the definition of an accredited investor coupled with ensuring that you comply with all blue sky (or state laws) that are related to the operations of raising capital specifically for a tree removal service. Since you will not be dealing in the sale or trading of securities, there may be a number of exceptions that you qualify for as it relates to working with an investor for your new company.

You should always provide any accredited investor funding source for complete resume of your abilities to operate your business on a day-to-day basis. This is especially true if you have had extensive experience as a tree removal specialist or landscape contractor. One of the most difficult things when raising capital from third parties is to provide to a potential investor that you are going to be able to effectively manage the complex accounting, general business management, sales, and marketing that will relate to your tree removal service.

Sometimes, you should evaluate your financing options that you get the best deal possible as it relates to selling equity in your business to a third party angel investor. In some instances, you may be required to provide ongoing charitable donations as it relates to your business and the angel investor that you’re working with on an ongoing basis if the accredited investor is looking for a certain level of tax deduction. A document that you provide to a third-party should clearly disclose any appropriate risks to a third party funding source. Your attorney can assist you with this matter.

Additionally, these advisers will assist you as it relates to producing the necessary documentation, including a tree removal service business plan (as included in this package) that will be required of you. One of the other things that you should clearly focus on is your ability to generate extremely high gross margins that are related to the need for trees to be removed due to dangers to homes (or on behalf of municipal agencies). Angel investors and private funding sources want to see that your tree removal service is able to generate highly predictable streams of revenue from the services that are provided to the general public in regards to their tree removal needs. In any documentation that you provide to these investors you should heavily focus on the tremendous amount of tangible assets that are held by the business (again, in the form of vehicles) so that an investor can be secured in their investment. Of course, you should always provide your potential business investors with an in-depth view of your profit and loss statement, cash flow analysis, and balance sheet that is associated with your tree removal service.

Often the private placement memorandum contains a copy of the business plan. If you attorney determines that a copy of the business plan should be included in the investment prospectus, then he or she should thoroughly review the plan to ensure that it contains the proper language and disclosures for potential venture capital or angel investment funding sources.

If you are applying for capital from a bank then you will not need a private placement memorandum. You will simply need a business plan. You should anticipate that you will need to put up at least 10% of the total amount of the capital related to launching your tree removal service. Within your business plan, you should heavily focus on the economically secure nature of your tree removal service. Most importantly, you are going to want to make sure that you develop a specific table that focuses on the tangible assets that your business will own (most importantly the tree removal trucks and equipment you will own). One of the most important things regarding business loans (whether it is a commercial loan or SBA loan) is that you have a substantial amount of tangible collateral. It is very important that a lending institution feels that they can recoup up to 75% of their investment in event that your firm does not go as planned. As such, they are going to want to make sure that they can put an appropriate lien on your property in the event of business liquidation.

 

 
 

 

Employee Issues


Next, you’re going to want to focus significantly on the employee issues that you will have as it pertains to your business. Every tree removal operation needs to have a number of employees including a location manager, tree removal employees, and bookkeeper that assist in the ongoing operations of the business. As such, you’re going to need to develop a highly focused employee manual, procedures and protocols, sexual-harassment policies, as well as many other things that come along with operating a business that has 3 to 7 employees or more. As such, you may want to hire a specialized lawyer that can put together an appropriate employee handbook so that a substantial amount of the liability that is associated with the business is substantially reduced. Of course, you can never fully remove any bit of liability from a business, however, by having all these things in place prior to launching your business operations you will be able to know exactly what to do should an employee issue a rise. Additionally, you can always work with an outsourced HR consultant that can advise you properly on how to not only develop the documentation discussed above, but how you can handle specific employee issues as they come about. From time to time you are going to need to fire an employee, they often employee, or have a specific issue as it pertains to someone stealing from you or related issues. As such, it is extremely important that you take a look at each of these matters on an ongoing basis and figure way that you’re going to deal with them as they come about.

Market Research

 

 

It is also extremely important to note that due to the moderate operating costs associated with a tree removal service that you are going to need to keep a very close watch on the cash flow associated with your business. As we mentioned above, a line of credit based on your anticipated monthly receivables is almost required unless you have a substantial amount of capital on hand as it relates to day to day funding costs. If you are a startup business then you are most certainly going to need a working capital line of credit.

 

One of the most important aspects of this business, or any business for that matter, is that you are able to provide unparalleled support to your customers. This is important to note as individuals are going to depend on you to promptly show up to assist people with removing dangers trees that are still standing or trees that have fallen onto properties or power lines. Your customers (which will include individual homeowners, property owners, municipal agencies, power companies, and landscape contractors) are going to depend on you to effectively and quickly remove fallen and dangerous trees.

 

As we discussed earlier, from the onset of operations, you are going to need to have an extensive amount of marketing in place so that you can immediately provide your tree removal services to the general public. Foremost, you are going to want to take out advertisements in circulars, local newspapers, and on local event boards that prominently display you advertisements to the general public. This will ensure that you receive immediate local brand name recognition as it relates to your business operations. As many people now conduct preliminary searches for specialized services, like tree removal companies, you are also going to want to focus heavily on developing a nice looking website that showcases your business’s fees, hours of operation, contact information (including emergency contact information), and your abilities to provide tree removal services. The cost of having this website will run from $300 to $700 depending on the “bells and whistles” that you will want to have on your website. Most importantly, you want to make sure that your local address is displayed prominently throughout the website as you will list higher in search engine optimization results as it relates to your local tree removal service. Most importantly, you are going to want to make sure that you immediately develop relationships with landscape contractors that will use your business in a subcontracted capacity.

 

One of the things that you should focus on when you are starting a location for your tree removal service is that you do not need to have a fancy location.  This is due to the fact that your employed and independently contracted tree removal employees are going to travel to locations in order to provide these services. As such, your need to have a local that would accommodate visits from clients is not needed. This will drastically reduce the costs that are associated with operating your tree removal service on a day to day basis. Anytime that you start a business, you are going to want to make sure that you keep all costs to a minimum before your tree removal service business begins to generate revenues.

 

Once you have become profitable and the demand for your services increase then you may want to begin to expand your business. Foremost, the expansion of your tree removal service should be relatively easy once you are profitable and cash flow positive. As per our discussion above, banks and financial institutions like to lend to tree removal services that are profitable due to the highly predictable streams of revenue generated by these businesses coupled with the fact that almost all borrowed money is used for the purchase of tangible vehicle assets. It is important that if you are seeking expansion capital for your tree removal service, you may want to focus on obtaining a working capital line of credit rather than a business loan so that you can have greater control of your expansion as time progresses. Additionally, due to the fact that tree removal services are able to generate high gross margins you may be able to effectively self finance the expansion of the business rather than taking on additional debt or raising equity from a private investor. As we have discussed throughout this document, the costs related to developing and expanding these businesses is relatively low and as such, you can aggressively expand your business usually with only one round of capital.

Conclusion

In closing, the most important thing to remember when you are starting a new tree removal service or related service business is to make sure that you have all of the proper licensure, provide excellent service to your clients, and that you keep a proper watch on your cash flow to make sure that you have enough capital on hand as invoices are paid out to your business. With that being said, good luck with starting your new tree removal service!

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