What should I check before buying a scrap metal yard?

A scrap metal yard buys ferrous and non-ferrous material, sorts and processes it, and sells it on. Most of the business lives in its records, its relationships and its equipment. The checks below help you confirm how the yard really runs. They are not a way to set a price, which is a question for your accountant and advisers.

Scale tickets and records

The scale is the yard’s main record. Ask for scale tickets for incoming and outgoing loads across more than one year and see whether they match purchases and sales in the books. Ask how walk-in sellers are recorded and how identification is kept. Have your accountant test a sample, and ask your lawyer which record-keeping duties apply to a buyer of scrap.

Suppliers and buyers

Find out who brings material in: contractors, demolition crews, industrial accounts or walk-in sellers. Then find out who takes it out: mills, brokers or other yards. Ask how much depends on any one customer on either side, and whether those relationships are with the owner personally. A BDC guide to due diligence lists related questions.

Stockpile and equipment

Ask to count the material on hand with the seller and compare it with the inventory in the records. Look at the shears, balers, loaders, scales and roll-off trucks, and ask for maintenance history. Heavy equipment can be costly to replace, so find out what is nearing the end of its life. Check whether any of it is leased or pledged to a lender.

The site

A yard that has handled metal and fluids for years may carry a history that a buyer inherits. Ask whether environmental assessments exist, and send the site’s permits, zoning and any past orders to your lawyer. Your lawyer can tell you whether they pass to you and what protection to seek in the purchase agreement.

See also how to tell what a scrap metal business really earns.