How do I tell what a scrap metal business really earns?

A scrap yard is not paid a fee for its service the way many small businesses are. It buys material, processes it and sells it, so its earnings are the spread between the two. That spread moves with markets the owner does not control. Reading it well takes several years of records and a clear view of how each material behaves. This page does not set a value.

Margin by material

Ask for purchases and sales split by material: steel, aluminum, copper, brass and the rest. A single blended margin can hide a yard that depends on one metal. Look at each year separately, not only the latest, and ask the owner to explain the differences. Your accountant can help you see which materials carry the business and which only add volume.

Inventory and price swings

Material on hand at year end is usually counted as an asset, so how it was counted matters, and your accountant can confirm the treatment. Ask how the stockpile was measured, who counted it and how it was valued. A yard holding material through a price rise may look strong on paper, and one holding it through a fall may look weak. A BDC explainer on inventory covers the basics.

Cash purchases and scale tickets

Many yards pay walk-in sellers at the scale. Ask how those purchases are recorded and how they reach the books. Then ask your accountant to reconcile scale tickets to both purchases and sales, so that the tonnage in matches the tonnage out, less what is on the ground. If the records do not agree, ask why before you rely on any earnings figure.

What the owner does personally

Ask how much of the buying, grading and customer contact the owner does. A yard that depends on the owner’s eye for grading Ask how much depends on the owner’s eye, who would train you, and for how long.

For the wider checklist, see what to check before buying a scrap metal yard.