Start a junkyard business by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your junkyard business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a junkyard business?
Many junkyard business owners report minimal start-up investment, citing land as the largest upfront cost. If you already own several acres of land, check with local officials to determine if it is commercially zoned. If not, you will need to invest in a plot of land that is.
Once you have acquired land, there are a few additional items you’ll need to invest in:
- Fencing - This serves to protect your investments. Owners are urged to include multiple gates to allow for easy access to larger items.
- Security - Many owners choose to invest in security systems that include motion detectors and cameras to ensure their inventory is safe after-hours.
- Facility - A building large enough to store inventory and disassemble items is necessary. The space should have adequate ventilation, and must be large enough to have multiple sorting areas for recyclables. There should also be ample space for an office. This is where administrative tasks, sales, and inventory will be handled.
- Equipment - Since dealing in scrap car steel can prove quite profitable, consider investing in a forklift and car crusher. A truck for hauling parts would also prove to be a worthy investment.
- Administrative equipment - In addition to the standard office equipment, start-up business owners are urged to invest in software that will help in managing the finances, inventory, and customers.
Once you have your workspace in order, you will need to invest in your initial inventory. Experienced industry professionals report spending approximately $2,500 on start-up inventory.
What are the ongoing expenses for a junkyard business?
Your business’ largest ongoing expense will be centered on the salvaging process. This includes purchasing the product, materials used to process it, and processing labor. Additionally, your budget should include insurance, marketing expenses, and the standard administrative costs that come with running a business.
Who is the target market?
Ultimately, a junkyard’s target market is anyone seeking an affordable option to fix or replace an item they need. The specifics vary based on the needs of the community. Conducting thorough market research prior to developing a business plan is recommended. This will help understand market needs and identify niche markets your business should target. Once you’ve defined your niches, you can then determine what types of individuals and businesses might require your services. Grocery stores, factories, building contractors, construction companies, automobile outlets, homeowners, and electronic companies are all potential clients to consider.
How does a junkyard business make money?
This business is about buying and reselling for a profit. Therefore, it is critical that business owners are able to identify any usable parts, as well as their value. Parts and components must be accurately priced to ensure the business recoups their investment, labor costs, and ongoing expenses. Teams with the proper skill set typically repair salvageable items, generating a larger return on their investment.
How much can you charge customers?
Prices are set based on demand, condition of the item, and region. Operating expenses should be a factor in your pricing formula.
How much profit can a junkyard business make?
Since the goods and services offered vary significantly from one to another, published junkyard profitability numbers cover a wide range. One owner reported earnings as low as $1,000 per month. Owners in larger, more populated areas report six-figure profits.
How can you make your business more profitable?
Entrepreneurs in this industry have successfully increased their profits by selling inventory on eBay. Depending upon your area, carving out a niche in farm machinery could significantly increase your profits. Collecting non-ferrous items, such as lead, copper, aluminum, and brass is also profitable, yet often overlooked. If selling salvaged car bodies is part of your business plan, be sure to watch the value/sales rates, as they fluctuate monthly. Stockpiling these items to sell when the offers are high will boost profits.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your junkyard business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a junkyard business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A junkyard business is generally run out of a piece of land. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a junkyard business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your junkyard business will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a junkyard business
The most successful junkyard owners have strategically placed the location of their business. Visibility serves as the backbone of their marketing strategy. A large, well-placed sign that can be read from the road is a constant reminder of the services you offer.
While location is enough to propel some junkyards to success, consider the following when outlining a marketing strategy:
- Develop a website that keeps an up-to-date list of your inventory.
- Make sure your business is listed on all online and printed directories.
- Network with others in the community. Make sure they understand the value of your services and encourage them to spread the word.
- Make use of social media platforms such as Facebook, Instagram, and Twitter.
How to keep customers coming back
Your market research should prove invaluable in identifying the needs of your customers. A deeper understanding of what they expect from you, as well as what you should expect from them, will ensure you consistently deliver quality goods and services.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Junkyard Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
To realize significant success in this industry, one must possess strong technical knowledge regarding the nuts and bolts of the items they wish to salvage. They have a thirst for knowledge, continuously seeking out new opportunities to expand their services and further serve their community. Additionally, this person must have a genuine love for working with people and helping them see the beauty in another person's junk. Entrepreneurs who are passionate about reducing our carbon footprint and who enjoy helping others stretch their limited budget would be the most fulfilled in this profession.
What happens during a typical day at a junkyard business?
As a junkyard owner, your business will primarily be serving the local community. Depending upon your skill set, you will salvage everything from automobiles, motorcycles, and appliances, to furniture. You and your team will spend the majority of each day acquiring these new items and breaking them down for parts, also known as sorting. Once this process is complete, you will need to repair items slated for restoration and junk any unusable materials. These are typically crushed and sold to other salvage yards for processing or further recycling. Parts and restored items must then be inventoried. Maintaining a complete list of all inventory is critical to your business’ success.
Prospective customers will come to you, via telephone or in person, to determine if you have the parts they need. Once you have either located the part or removed it at their request, the client will pick it up at your facility.
What are some skills and experiences that will help you build a successful junkyard business?
There are two driving factors that will determine your success in this industry: price and demand. Therefore, it is critical that you understand the rise and fall market needs and are able to purchase/price accordingly. You should also be adept at restoring items, or hire a staff member that possesses this knowledge. The American Salvage Pool Association is a great resource for members who wish to gain insight into environmental issues.
As the business owner, you will also be expected to work with a variety of people within the community. Strong interpersonal, organizational, and delegation skills would prove all beneficial, offering the confidence needed to communicate with each individual.
What is the growth potential for a junkyard business?
As an important part of this country’s green efforts, the junkyard industry has seen a spike in growth. Automobiles are the most recycled product, with virtually 100% of all dead vehicles being recycled. This niche records annual sales of over $32 billion and is represented by businesses of every size. The key to long-term growth is understanding your community’s needs and possessing the right connections to deliver.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a junkyard business?
Individuals with years of success in this industry offer the following advice:
- When identifying market needs and ways to affordably acquire inventory, think outside the box. For example: one junkyard owner lives in a Navy town. The sailors purchase old vehicles, drive them until it’s time to ship out, and then simply leave the cars on the street to be picked up. With a little paperwork, the junkyard can take possession of the vehicle.
- If your business plan includes auto salvage, invest in the Hollander Parts Interchange reference books.
- Contact the U.S Environmental Protection Agency (EPA) if you need funding or guidance when getting your business started. They will also arrange an environmental impact study, which will determine your business’ impact on the community’s ecosystems and groundwater.
- Set a profit margin percentage and stick with it.
How and when to build a team
The size of your team depends upon the size of your operation. Your skills and knowledge should also be a factor in who you hire. If you have a background in mechanics, it may not be necessary to hire a mechanic until the business grows significantly. Each team member should be a professional, committed to helping the business expand. A background check is recommended. To ensure the safety of your crew, make sure all procedures and safety policies are communicated.