How to Start a Scrap Metal Business

Learning the Trade

Be able to identify and sort different metals. Buyers will be purchasing specific metals by the pound. You will need to accurately identify your scrap for sale. To do this, first use a magnet to check the metal's ferromagnetism (whether or not the magnet sticks). Weigh this information with the metal's appearance, weight, and item of origin. There are five major metals that will likely make up the bulk of your scrap. Iron and its alloy steel have many uses and are probably the most common metal you'll be scrapping. Iron is ferromagnetic, strong, and lighter than most other metals except for aluminum. While normally different shades of gray, it rusts into a reddish brown. Aluminum is non-ferromagnetic and very light. Like iron, it is ubiquitous. Pure copper is slightly pink, while lower grades are a reddish brown. It tarnishes into a jade green color. Copper is non-ferromagnetic and slightly heavier than iron. You'll find copper in wiring and quality cookware. Bronze is an alloy of copper but is worth significantly less. It is a much lighter, almost gold color. It is commonly found in instruments, decorations, and pipe valves. Lead is extremely soft and heavy. It is typically used to make bullets and as radiation shielding. Keep in mind that lead is extremely toxic, so use protection when handling anything you suspect to contain it. Keep in mind that within these basic categories there are also many different grades with their own properties. For example, most stainless steel is non-ferromagnetic. Additionally, you will probably come across rarer valuable metals if you scrap electronics. Study these before starting your business.

Learn how to disassemble objects for scrap. In order to sort your scrap, you will likely need to break down larger items into smaller component parts. Some objects can be taken apart easily with simple tools, while others will require a blow torch or a metal saw. The item type will determine exactly what steps you will need to take. Look up information online before scrapping something you haven't worked with before. While many buyers will purchase wiring as-is, some scrappers choose to strip it themselves to get the full copper value. Figure out if the difference in price is more than the cost of your time and labor. Stripping wire may be worthwhile when you're first starting your business, but less important later on.

Keep track of metal prices. Check metal prices regularly to be aware of what to charge and what to pay for scrap. To do this, simply use the Internet to search for "commodity trading prices." Be sure to ask local contacts in case your area sells at a different rate. It may be a good idea to offer a fixed rate when buying scrap while asking buyers for close to the market rate when selling.

Setting Up

Purchase or rent a vehicle for your business. Pick a truck or van that is large enough to transport large amounts of scrap metal. If your business focuses on scrapping smaller high tech items, you may be able to use a personal sedan instead. Protect the inside of your vehicle from possible damage or staining. If renting, make sure the rental company allows for commercial use of the vehicle. Cut down operating costs by choosing a vehicle with good fuel efficiency.

Set up an area for your scrap. You will need a place to sort, disassemble, and store your scrap metal. Depending on how much and what type of items you plan to collect, this could be as small as a storage unit or trailer. If you want a large yard, you'll have to lease or purchase an open space. Either space must be secure to prevent theft and possible liability in the event of an injured trespasser.

Invest in protective gear. Dealing with scrap metal can be dangerous and may subject you to cuts, tetanus, blunt trauma from falling objects, and even possible radioactive or otherwise hazardous waste. Hardhats should be worn when hauling bulky items or when near stacked metal. Wear thick spill-resistant gloves and boots when working with scrap. Respirators are necessary if hazardous particulates, such as asbestos, may be present. Wear welding goggles when cutting metal.

Taking Care of Legal Issues

Get insurance coverage for your vehicle and property. If you have a site that is open to the public, you'll need to cover liability issues. At the minimum, have customers sign liability waivers before entering the site. Having insurance will also help you to recoup costs in the event of theft or a natural disaster.

Keep accurate records of all business expenses and income. While different countries and locales have varying tax laws, the need for accurate records is universal. If you live in the US, you will need to file an IRS 1099 Form each year as part of your tax return. Report all sales made. Be sure to claim deductible business expenses to reduce your tax burden. Use the Internal Revenue Service's Cash Intensive Businesses Audit Techniques Guide as a reference. This document is available for free on their official website.

Talk to your county or town about necessary licenses and permits. Many local municipalities require that scrap metal businesses obtain appropriate licenses or permits. If you run a scrap yard or other area that is open to the public, you may have to deal with zoning issues like traffic, parking, and safety. Because of this, you may need to demonstrate your safety practices, show proof of insurance, pay a fee and/or indicate your knowledge of local laws.

Speak to an attorney. Consult an expert on scrapping or similar businesses to make sure you have everything covered. Ask about any tax, licensing, or occupational safety issues you may need to address. If you live in the United States and have at least one employee, your business must be compliant with standards set by the Occupational Safety and Health Administration (OSHA). Read the requirements on OSHA's website before hiring to make sure you offer a safe work environment.

Running Your Business

Hire an employee or find a business partner. Even if you're strong and in great shape, most scrap hauling is at least a two person job. Figure out a fair salary for an employee or share in the profits with a partner. If your business focuses only on more manageable items, such as wires and electronics, you can start out on your own.

Start making arrangements to collect scrap. Major sources include businesses that use and discard metal and homeowners throwing away bulky items like refrigerators and air conditioners. You may even choose to buy used cars at scrap prices. The business transaction that comes from obtaining your scrap will vary. Many commercial sources will require payment from you. However, if you advertise as a junk-disposal business to consumers, you can often obtain scrap for free or even charge for your service.

Advertise your new business. Take out ads in your local newspaper, post your business on online forums, and flyer door to door. Let your neighbors know that you are starting a scrap metal business and ask them to send any discarded metal your way.

Find buyers for your scrap metal. A larger local scrap yard or recycling center are some options. You can also advertise scrap metal that you have for sale. If you decide to start a scrap yard, it can be open to the public at certain times for customers to browse and buy.

Work out a schedule. Optimize the efficiency of your business by organizing your time. Set aside different day(s) to obtain scrap, sort and dismantle metal, and delivering it to buyers. Keep at it to make sure your operation runs smoothly. If you neglect any of these three tasks, the work can build up and make doing the other two impossible.