piranhas and great white sharks, oh my!

Wanted to share some comments I received while asking questions on a entrepreneurial forum about starting/buying an auto scrap yard. To listen to these guys its a wonder any of us make money?!

Scrappers and junkers will eat your lunch, kid. They have the permits and zoning that you don't have today. They had the financing years ago that you don't even have today.

They know what everything they hold is worth, too.

You are a fresh little goldfish thinking that you can jump into a shark tank filled with everything from piranhas to Great Whites.

I really do not understand how you figure to beat people at their own game who have a lot of experience?

look out for an EPA nightmare.............

Nobody in the scrap car business would ever sell their lot for less than the current scrap value + land.

Its what they do for a living, literally. That's like saying a jeweler wouldn't know what gold was selling for, or what he could liquidate it for.

no, not a single one. the consensus is I'm a moron

I need to thicken my skin.

Funny thing I wasn't asking about the industry itself, I was asking about financing a business plan - how to approach banks or investors, what kind of return I need to justify the investment, etc, and they all just jumped on the business idea itself.

I think you need to find a local group of retired business people to talk to. We have one here and they really go out of their way to help you.

That's why I like you guys - always positive!!

almost every town has a group of some kind promoting new business in their town. the larger town have business enqubator offices like SBA and I believe the group is called SCORE, it is made up of retired former business owners who do just what you need. correction, they will advise you as to how to do what you need.

that said , to start a new auto scrap yard or a ligitimate large salvage yard to day ...... sry to say probably every thing those guys told you is true. we are living in an anti business anti success Amerika right now. they all started their business in the real America. not sayin it cant be done but chancesw are slim I think. just my .02 but good luck hope ya make it.
we used to b a capitalist country, we are now a vulture capitalist society, and unfortunately most of us are just pidgions.

I would but its a subscribed private forum and kind of work related...I have to play nice on there.

Last one, saved the best for last

I can say coming from the machining and scrapping out machines side that the scrap business is a dirty, largely unethical one. If you plan to run things honestly, you're going to get your clock cleaned. I know quite a lot of machine shop owners and every single one of them has nothing but bad things to say about scrappers.

-Tweaked scales that read low
-Fudging the condition of materials
-Offering one price, then when the stuff is on-hand, changing the price
...and lots more.

If you aren't willing to be dishonest, you are going to be paying a lot more for scrap than all the other guys, because they are the worst bunch of shysters I've ever seen.

Originally Posted by Scrapette

I would think it would mean something more along the lines of predator and prey.

an irish lass with sharp objects. would that be predator or prey?

well played madam

Starting or buying a scrap yard is not something the average business person can be sucessful at. You need an excellent set of business management skills and deep pockets.

The business management skills include general management, financial management, inventory control, shipping logistics, negotiation ability, understanding of contracts, understanding of government rules and regulations, dealing with law enforcement and other government agencies and , of course, metal pricing.

Profit margins of scrap yards are not anywhere near as high as most scrappers think they are. Schnitzer Steel is a publicly traded scrap company. Here is what they say about ferrous profit for the last quarter:"Operating income per ferrous ton was $11 in the first quarter of fiscal 2012, a decrease of 49% compared to $21 per ton in the first quarter fiscal 2011." At average selling prices of $432 and $353 a ton, those are profit margins of 2.55% and 5.95%.

This website has scrap yards for sale: http://scrap-king.tripod.com/id2.html

One of them has sales of $56 million and profit of $3.3 million EBITDA. That is a 5.90% profit margin.

You need the deep pockets to hold inventory until you can sell it and you need to be able to survive the market slowdowns and downturns. Try to find scrap yard owners who will talk about how they got clobbered by the huge price drops in 2008. Schnitzer Steel (SCHN) stock went from a high of 119 in July 2008 to a low of 16 in November 2008. Undercapitalized scrap yards just went out of business.

Getting other people to finance a scrap yard business will be rather difficult. It would be easier if you had significant capital of your own. I wish you well with your endeavors.