Valuing an on-going scrap steel brokerage

Originally Posted by RRWatkins

I may have found an opportunity to buy a scrap metal (steel only) brokerage business... but is there a standard way of measuring its' fair price?

Like any other business, look at their net and gross profit for the last year, but remember this year won't be as good as steel prices are down.
A lot of businesses price their business based on that 1 years income.

Well....not an expert here, but since a brokerage firm usually doesn't do much but put buyers together with sellers, they don't need much in the line of assets or yards or shops or personnel... A desk and a phone is about all they need. And a brain full of contacts and knowlege of how things are done to get a shipment across a border or how to get paid in some of the more slippery parts of the world.

BUT...the question is how to purchase that knowledge.

You just about have to keep the seller around with you for a year or so to pick up that information.

So the valuation of the company might be to consider the average value of the turnover over the last few years (cash flow) and how much they made off of that cash flow. It seems to me that company valuations start from those numbers. Add in the experience you are buying, that is, if you need to hire the guy for a year to suck all the information out of his head. Are there any liabilities current, or on the horizon? Any lawsuits, either under way or upcoming? Liabilities would serve to lower the company value. Are you buying his "desk and phone", ie office space or building?

We had a fellow on here a while back who is set up as a precious metal refiner, but he put in some real good posts about his experiences as an international scrap broker prior to going into refining. It made fascinating reading. I can't remember if he did non ferrous or ferrous scrap. I haven't seen him post on this forum for about a year, but he might be worth chasing down and talking to if you are seriously considering this kinda buz. Do a search on here to see what you can find.

Good luck and keep us posted!!

Jon.

EDIT: The fellow I was referring to above is NobleMetalWorks. Try THIS LINK to one of his replies to another person talking about brokering.