Are you planning on opening up a scrap yard, but wondering where to start? Then this guide on how to open a scrap yard is for you.
Here we review all the steps you will need to take to start your business, including:
- Conducting market research for a car scrap yard
- Positioning yourself on the scrap yard market
- Scoping out the right location
- Choosing your legal structure
- Identifying the equipment and staff needed
- Creating a marketing plan
- Writing your car scrap yard business plan
- Raising the capital needed to open your scrap yard
The importance of market research before opening a scrap yard
It's essential to carry out market research before opening a scrap yard. Although gathering data doesn't help you physically build up your business, it's important to understand how the sector works and its current trends, including regulation changes and what activities attract growth.
Market research first of all gives you a glimpse of the global scrap yard market and its main trends. Secondly, it enables you to develop a high level of knowledge when it comes to the local market, in other words, the area in which you intend to set up your scrap yard business.
- How many existing scrap yards are within your chosen area?
- How many cars do they process per day?
- Are they able to meet the demand? Is the local market large enough to accommodate a new scrap yard?
- Do they also offer to shred or resell spare parts?
Try to identify your most profitable competitors and what additional services you can offer to set you apart from them and/or increase your turnover.
Positioning yourself on the scrap yard market: independent or franchise
When deciding the type of structure you want your business to take, you can go with one of two options: creating your own independent scrapyard business or joining a scrap yard franchise.
Joining an existing franchise is an interesting alternative on many levels. First of all, you will be able to rely on the skills and know how of an already established brand. Of course, in return, you will have to pay royalties and you will certainly lose part of your independence, but the long-term benefits will more than likely cancel out these losses.
It is up to you to weigh up the pros and cons of opening a scrap yard as a franchisee by carefully considering the advantages and disadvantages. You can, of course, also choose to take over an existing scrapyard which can give you part of the benefits of joining a franchise without the costs.
Where should you open your scrap yard?
The next step in opening a scrap yard is to choose the location of your business.
Ideally, it should be situated far enough away from residential areas so as not to bother neighbors, but must still be relatively close to customers and, at the very least, easily accessible by road. Your customers will either directly drop their vehicle off there or have it towed to the scrapyard.
Finally, before deciding your desired scrap yard location, it's important to identify any existing scrap yards nearby to avoid direct competition.
What legal structure should I choose for a car scrap yard?
Every new business must be defined by legal form. Much more than a simple administrative formality, this is an essential step for anyone starting a business.
Indeed, the legal form of your business will have a direct impact on the finances, the owners, i.e. whether they're self-employed or employees, as well as how much the business is taxed.
To help you make your choice when opening a scrap yard, you can find more detailed information on the different legal statuses available to you on the gov.uk guide for UK business owners and SBA guide for those based in the US.
The equipment and staff needed to open a car scrap yard
Estimating the equipment and staff needed for the opening and, subsequently, the proper functioning of your scrap yard is a key step in being able to set out a reliable, quantified, and realistic financial forecast.
The equipment necessary for the creation of a scrap yard
Opening a car scrap yard requires rather large investments.
You will have to buy or rent a piece of land, as well as all the equipment necessary for the dismantling of a car while respecting the environmental regulations in place.
You will, of course, also have to provide a comfortable space to welcome customers, on top of workstations, break areas, and offices for your employees.
If you want to open a scrap yard with a shredder or a space for selling used parts in good condition, you will have to factor these extra costs into your estimate.
The recruitment plan for a scrap yard
To run a successful scrap yard business, having skilled workers who are trained in car dismantling is imperative.
You will also need to hire experts to check the condition of the parts you will be selling. If you wish to resell them within your scrap yard, then we recommend that you also hire a salesperson.
Additional services required to open a scrap yard
A scrap yard, like any company, must also have recourse to a certain number of additional services:
- An insurance company - to provide professional insurance
- A cleaning company - to maintain the cleanliness of the premises
- An accounting firm - to manage the administrative and accounting aspects of the scrapyard
Remember to ask for quotes from several professionals for all of these services, to ensure you get the best service in terms of value for money.
Setting out the marketing plan for a scrap yard
The next step in opening a scrap yard is to put an effective marketing strategy in place to help you attract and retain customers.
The marketing plan will bring together all the communication and marketing actions necessary to build your customer base, whether they be people or institutions.
To get your name out in the public domain, you should consider taking the following actions:
- creating partnerships with insurance companies or car dealerships
- appearing on sites and directories listing all scrapyard
- putting flyers through the mailboxes of people and companies within your area
- purchasing online advertising space
These are only a few ideas, so it's up to identify the most promising options. Balance the cost and expected results of each action to determine which ones are likely to be the most effective.
Writing a business plan for a car scrap yard
Once all the previous steps have been completed, you can focus on writing the business plan to open your scrap yard.
The business plan is a document that enables you to present your project in a digestible manner, evaluate its potential profitability (you must open a profitable car scrap yard!), and convince investors to support you on your mission.
To simplify, a business plan for a car scrap yard consists of 2 parts:
- A written part used to present the project and highlight its strengths
- A financial part used to highlight the funding requirements and expected profitability of your company
The business plan is integral in emphasising the seriousness of your professional project. Therefore, it must be impeccable both in content and form.
If you've never created a business plan and don't feel very comfortable doing so, you can opt for an online business plan software program, which will accompany you throughout the drafting process and offer you templates that have already been drawn up.
There are several major advantages to using specialized software to create a business plan for a scrap yard:
- You will be guided step by step through the writing process with instructions and examples for each part of the plan.
- You will easily create your financial forecast, letting the software take care of the calculations
- You will have access to already written business plan templates
- In the end, you will get a professional document, formatted and ready to be sent to your bank
If you are interested in this type of solution, you can try our business plan software for free by signing up here.
Securing the financing needed to open a car scrap yard
Launching a scrap yard business requires a substantial financial investment.
There are multiple sources of financing that can be used to finance your scrap yard, which you can also combine if necessary.
First of all, ask yourself how much of your own money you can devote to this project. Contributing equity (even if the contribution is modest) is essential to convincing investors and banks to support your venture.
You can then turn to the banks to request help in financing some of the investments. Before committing yourself to one bank, do some research and compare offers to ensure you choose the best deal for you.
Another solution is to approach private investors, your relatives, or business angels in your area, and enable them to invest in your company.
Finally, don't neglect state aid available to startups. Whether it comes from the State or local authorities, you may be able to benefit from interest-free loans, tax credits, etc.
This article is coming to an end, we hope it has given you a better understanding of how to open a scrap yard. If after reading this, you still have a few questions about starting or taking over a business, please do not hesitate to contact us.
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