How to Start a Junkyard Business

A junkyard, also commonly known as a salvage business, collects items consumers no longer deem usable, such as old vehicles, broken appliances, discarded furniture, and materials from demolished buildings.

This “scrap” is then transformed into reusable materials, such as metal, plastic, and other raw components, and sold to manufacturers, construction companies, and other buyers for repurposing or resale.In this comprehensive guide, we’ll walk you through all the essential steps you’ll need to take to start your own junkyard business, from conducting market research and securing funding to setting up operations, and attracting customers.

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Industry Overview

The U.S. junkyard industry is valued at around $8 billion as of 2024 and is projected to steadily grow in the coming years.

This growth is driven by increasing environmental regulations, advancements in recycling technology, and a heightened consumer focus on sustainability.

If you’re wondering why these factors are so impactful on the junkyard industry, the answer is that this is a result of the fact that both consumers and regulators are increasingly focusing on recycling efforts, and junkyards serve as the primary way these recycling activities are carried out.

An example of this is that over 12 million vehicles are decommissioned each year in the U.S., with up to 86% of their materials being recycled. And how does this happen? You guessed it — through the 9,000 junkyards operating across the country.

Startup Costs

If you’re considering whether a junkyard business is right for you, the first thing you’ll need to know is whether it’s a) affordable, and b) worth the investment. I mean, how much can you actually make running your own junkyard business?

Well, it depends, and the initial investment for a junkyard business varies widely based on a multitude of factors, with total startup costs generally falling somewhere between $500,000 to $2,000,000.

These are broken down as follows:

• Land Expenses: You will need to purchase or lease a sizable piece of land — typically at least 5 acres, with most junkyards requiring around 10 to 20 acres. This land will need to be located in either industrial parks, outskirts of urban centers, or rural regions, with costs typically ranging from $5,000 to $50,000 per acre, depending on factors such as proximity to major roads, access to utilities, and local land values.
• Basic Infrastructure: After acquiring land, you will need to invest in infrastructure such as fencing, lighting, security systems, and a small office. These costs can range from $20,000 to $150,000, depending on the size and complexity of the facility.
• Machinery and Equipment: The most significant expense when setting up a junkyard, by far, will be the investment you will need to make in the necessary machinery and tools. Regardless of the size of your operation, you will likely need at least one of the following pieces of equipment:
  • Car Crusher: You will need at least one car crusher, which is used to break down vehicles and process scrap materials, typically costing between $50,000 and $200,000, depending on the size and processing capacity.
  • Forklift or Loader: You will need a forklift or loader to move heavy materials and vehicles around your junkyard. These machines are important for efficient handling of inventory and can cost anywhere between $20,000 and $100,000, depending on their size, brand, and load capacity.
  • Tow Truck: You will need a tow truck to transport vehicles to and from your junkyard, with costs ranging from $40,000 to $200,000, depending on factors like its condition, towing capacity, and additional features such as flatbeds or hydraulic lifts.
  • Hydraulic Lifts: You will need at least two to four hydraulic lifts to efficiently raise vehicles for dismantling, with each lift typically costing anywhere between $5,000 and $35,000.
• Environmental Compliance: Prior to commencing your junkyard operations, you will likely need to obtain a combination of environmental licenses and permits, which may include:
  • Environmental Impact Assessment: To evaluate potential effects on the environment from your operations, costing anywhere between $5,000 to $25,000.
  • Stormwater Pollution Prevention Plan: To manage runoff and prevent contamination, costing between $3,000 to $15,000.
  • Hazardous Materials Handling Permit: Required for managing hazardous substances like oils and chemicals, typically costs around $1,000 to $5,000.
  • Air Quality Permit (if crushing vehicles on-site): Necessary for managing emissions, with costs ranging from $2,000 to $10,000.
• Staffing Costs: Depending on the size of your operation, you’ll need to hire mechanics, yard laborers, and office staff with knowledge in vehicle dismantling, hazardous material handling, and equipment operation. Wages can range from $30,000 to $100,000 annually per employee, depending on their experience and expertise.
• Utility Costs: Your junkyard will have ongoing utility expenses, including electricity, water, and waste disposal, which can total around $5,000 to $35,000 annually.

Note: Keep in mind that some states require you to post a surety bond, usually ranging from $20,000 to $200,000, and secure environmental liability insurance, typically costing between $5,000 and $20,000 annually, before you can begin your junkyard operations.

Earning Potential

Junkyards have strong economic fundamentals and are generally considered highly profitable businesses, largely due to the scrap metal market, which serves as a primary source of revenue.

Junkyards acquire decommissioned vehicles at extremely low costs — sometimes for virtually nothing — and then dismantle these vehicles to extract valuable metals like steel and aluminum, which they sell as scrap metal, priced per ton.

While the profit margins on scrap metal are typically high, the challenge lies in the time it takes to realize those profits. It can take several months — or even years in some cases — from the moment the scrap is collected until it is sold off.

To manage the delay in realizing profits from scrap metal sales, most junkyards depend heavily on the resale of used parts as a key revenue stream. This provides immediate cash flow, as dismantled vehicles often contain valuable, functional components that can be sold to consumers and repair shops.

By selling these parts at a lower price than new ones, junkyards create a consistent income stream that helps cover operational costs and maintain profitability while waiting for the right time to sell their stockpiled scrap metal.

Beyond these two primary streams, junkyards often offer ancillary services such as towing, vehicle recycling, and waste management, which creates further opportunities for profit.

Together, these revenue sources contribute to strong, reliable earnings, with the average junkyard owner typically earning anywhere between $250,000 to $500,000 annually, depending on the scale and efficiency of the operation.

Note: The majority of a junkyard’s profits come from timing the sale of scrap metal effectively. If you’re purchasing scrap at $40 per ton and the market is at $55 per ton, selling immediately will yield a modest profit, but it won’t significantly impact your overall earnings. The key to substantial profitability lies in holding onto your stockpile until the market price rises significantly.

7 Steps to Starting a Junkyard Business

In order to start a junkyard business, you’ll need to complete the following steps:

1. Planning Your Junkyard Business
2. Registering Your Business
3. Finding and Securing the Right Location
4. Preparing Your Junkyard
5. Setting up Business Accounting
6. Getting all Applicable Licenses and Permits
7. Obtaining Business Insurance

We’ve broken each one of these down in more detail below.

Still exploring your options? Check out other small business ideas.

Step 1: Plan Your Junkyard Business

Before diving into your junkyard business, you’ll need to spend some time evaluating the local competition and understanding the market.

For example, is there a full-service junkyard near you offering vehicle dismantling and hazardous materials handling, which is convenient for customers but more expensive?

Or, perhaps starting with a self-service model — where customers remove parts themselves — could allow you to lower your costs and appeal to budget-conscious buyers.

Regardless of which model you come up with, you’ll need to do some serious research to set up your business in a way that positions it for long-term success.

Finding a Suitable Name

Choosing the right business name is both important and challenging.

This is because your name will need to be eye-catching, memorable, and (at least somewhat) related to your industry.

If you don’t already have a name in mind and need help, you can visit our How to Name a Business guide or use our Junkyard Business Name Generator tool.

If you do have a name in mind, we recommend researching the following:

• Your state’s business records
• Federal and state trademark records
• Social media platforms

You will also need to make sure that your business’s name is available as a domain — this is your website’s URL address.

Note: If you’re planning to operate a sole proprietorship, you might want to operate under a business name other than your own name — known as a “Doing Business As” (DBA) name. Keep in mind that this is not recommended for a junkyard business.

Plan Your Sourcing Strategy

One of the most important things you will need to do when starting your junkyard business is to come up with a solid sourcing strategy, as this is where your primary income will come from.

Will you focus on aggressively acquiring abandoned or totaled vehicles? If so, you should form partnerships with local tow companies in order to create a consistent flow of inventory.

If you’ll be offering incentives — such as vehicle donation programs — in order to encourage people to bring in their old cars, you should advertise online, in community centers, and through social media platforms to reach a broader audience.

Similarly, consider whether attending government, insurance, and/or private auctions on a regular basis in order to acquire vehicles would be a good idea for your unique junkyard business.

Step 2: Register Your Business

One crucial aspect that cannot be overlooked when starting your junkyard business is the importance of establishing a solid business foundation. While sole proprietorships and partnerships are the most common entity types for small businesses, they’re a far less stable and advantageous option than LLCs.

This is because unincorporated business structures (i.e., sole proprietorships and partnerships) expose you as an owner to personal liability for your business’s debts and legal actions, while LLCs protect you by keeping your personal assets separate from your business’s liabilities.

In practice, this means that if your junkyard business were to face a lawsuit or incur any debts, your savings, home, and other personal assets could not be used to cover these costs. On top of this, forming your business as an LLC also helps it to appear more legitimate and trustworthy.

Note: If you’re interested in more information before getting started, we recommend having a look at our state-specific How to Start an LLC guide (DIY) or our in-depth Best LLC Services review (for those opting for a professional service).

Step 3: Find and Secure the Right Location

The next step you’ll want to take is to find (and secure) the right location for your junkyard business.

For junkyards, this process is primarily focused on identifying land that is not only affordable but also zoned appropriately — either for industrial use or specifically for scrap yards or recycling facilities.

A very important aspect of choosing a junkyard location that people often overlook is the need for proper drainage systems.

Due to the fact that you’ll be handling hazardous materials, you’ll need to make sure that runoff water doesn’t contaminate the surrounding land or water sources. If your drainage system isn’t up to standard, hazardous waste can seep into the soil, leading to serious environmental violations and expensive cleanup efforts.

You should also consider the availability of vehicles for dismantling in your chosen location, as well as the local demand for scrap metal and used parts.

These factors directly affect your profitability, and being located near a steady supply of vehicles and a market eager for recycled materials will ensure your business remains viable and competitive.

Step 4: Prepare Your Junkyard Site

The next step you will need to take is preparing your junkyard site.

You will have to start by removing any existing structures, debris, or vegetation that might interfere with your layout. You’ll also need to establish containment areas for hazardous materials, ensuring they have proper systems in place to manage leaks or spills.

Once the physical space is prepared, you should focus on conducting a thorough site evaluation, including soil testing and surveying to identify any potential issues like inadequate soil stability or other potential concerns that could affect the foundation.

Once the evaluation is complete, you can move on to the construction phase, which includes setting up fencing, building office spaces, and installing security features such as cameras.

Step 5: Set up Business Accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business.

You can categorize accounts specifically for junkyard operations, such as:

• Inventory acquisition costs (e.g., purchasing salvage vehicles, parts, scrap metal)
• Yard maintenance expenses (e.g., heavy equipment rental/maintenance, environmental compliance, security)
• Equipment purchases (e.g., forklifts, car crushers, parts removal tools)
• Staff salaries (e.g., yard workers, mechanics, office staff)
• Facility costs (e.g., rent/mortgage, utilities, property taxes)
• Towing and transportation expenses
• Recycling and disposal fees
• Insurance costs (liability, workers’ compensation, property)

This should provide clear visibility into your business’s financial performance and aid in accurate cost analysis.

Step 6: Secure All Required Licenses And Permits

The applicable licenses and permits you’ll need will largely depend on your state and local regulations.

Even so, we’ve compiled a list of some of the common licensing regulations that you’ll likely need to satisfy in order to operate legitimately:

• Junkyard or Auto Salvage Yard License: Depending on your state, you will be required to apply for a Junkyard or Auto Salvage Yard License at either your state’s Department of Motor Vehicles or Department of Transportation. The cost varies but is typically between $200 and $2,000 annually, depending on the location and state requirements in question.
• Scrap Metal Recycling License: You’ll also need to obtain a Scrap Metal Recycling License from your state’s environmental protection agency or your local environmental regulatory body. The cost typically ranges from $200 to $500 annually, depending on the state and its specific regulations regarding scrap metal recycling.
• Dismantler’s License: If you plan to dismantle vehicles for parts, most states will require a Dismantler’s License, which is typically obtained through your state’s Department of Motor Vehicles. The cost varies but is generally between $200 and $1000 annually.
• Used Auto Parts Dealer License: If your junkyard business will involve selling used car parts, you may need a Used Auto Parts Dealer License. This can be obtained through your state’s Department of Motor Vehicles or Department of Revenue, with costs ranging from $100 to $500 annually.
• Towing License: If your junkyard offers towing services, you will need a Towing License, which is usually issued by the local police department or the city/county clerk’s office. The cost typically ranges between $100 and $500 annually.
• Weighmaster License: A Weighmaster License is required if you operate a scale to weigh scrap metal. This license is usually obtained from your state’s Department of Agriculture or Weights and Measures, with an annual cost between $50 and $500.

Health and Safety Inspections

Due to the fire risks associated with junkyards, most local jurisdictions will require you to obtain a Fire Department Permit.

This will likely involve passing an inspection that typically covers aspects such as the cleanliness of the facility, the safety of structures, the proper storage of flammable materials, the condition of fire suppression equipment, and whether there are adequate emergency exits in place.

Given the high-risk nature of junkyards ( due to handling hazardous materials and being prone to fire accidents due to the combination of flammable liquids and debris) you will likely be subject to regular inspections in order to ensure continued compliance.

Business Operation Licenses

At a state level, your junkyard business will most likely be required to obtain a business license in order to operate — with very few exemptions existing.

This process generally involves submitting an application, paying a fee, and meeting specific state requirements. However, some states also require you to demonstrate good moral character or provide proof of insurance as part of the licensing process.

Environmental Compliance Permits

Junkyards, due to the nature of their operations, will likely need to secure several environmental compliance permits to ensure they meet both federal and state guidelines.

The specific permits you’ll need will always depend on the nature of your junkyard operations and the regulations in your area. However, you will likely have to get at least a combination of the following:

• Stormwater Discharge Permit (NPDES): This permit is required to address contaminated runoff from your site, and to obtain it, you will need to prepare and submit a Stormwater Pollution Prevention Plan (SWPPP).
• Hazardous Waste Management Permit: Junkyards that handle hazardous materials like used oil, antifreeze, and batteries may need to register with the EPA as a hazardous waste generator.
• Air Quality Permit: Required for operations that emit pollutants, such as vehicle crushers, this permit addresses issues related to dust, particulate matter, and volatile organic compounds (VOCs).
• Spill Prevention, Control, and Countermeasure (SPCC) Plan: This plan is essential if your junkyard has on-site oil storage, and it focuses on preventing and responding to potential spills.
• Underground Storage Tank Permit: If you store fuel or other liquids in underground tanks, you will need to get an Underground Storage Tank Permit. You can do this through your state or local environmental regulatory agency, which will oversee the installation, operation, and compliance of underground storage tanks.
• Tire Storage and Disposal Permit: If your junkyard manages used tires, you will need a Tire Storage and Disposal Permit from your state’s Environmental Protection Agency or Department of Natural Resources.

Step 7: Secure Business Insurance

In addition to securing the necessary permits and licenses, you will need to obtain the right business insurance.

Note

Even if you form an LLC, purchasing business insurance is still a good idea. This is because an LLC structure protects your personal assets, not your business’s.

While specific coverage needs may vary based on factors such as location, size, and unique risks, there are several key types of insurance that most junkyard businesses should consider.

We’ve briefly outlined these below.

Environmental Liability Insurance

The most important insurance coverage for any junkyard business is Environmental Liability Insurance, which protects your business against pollution or contamination claims that may arise from hazardous materials like oil, antifreeze, and batteries leaking, spilling, or being improperly disposed of.

The cost of this insurance typically ranges from $5,000 to $50,000 annually, depending on factors such as the size of your junkyard, local environmental regulations, types of materials managed, your claims history, and your proximity to sensitive areas like water sources or protected land.

Commercial Auto Insurance

Since nearly all junkyards use vehicles like tow trucks or forklifts, you’ll need to have Commercial Auto Insurance.

This coverage will protect your business from liabilities and physical damage in case of accidents involving your vehicles.

The cost typically falls between $3,000 to $7,000 per vehicle annually, depending on factors such as vehicle type, usage, driver records, and your junkyard’s location.

General Liability Insurance

General liability insurance is a foundational coverage that’s essential for junkyard businesses because it protects against claims of bodily injury, property damage, and personal injury that may occur on your premises.

The average cost for general liability insurance according to recent data is $2,000 to $5,000 annually, though costs can vary based on your business’s specific needs and risks.

Property Insurance

Property insurance is essential for safeguarding your junkyard business’s physical assets, such as the course, buildings, equipment, and inventory. 

The median cost for business property insurance is approximately $63 per month for plans with a $1,000 deductible and a $60,000 policy limit.

Having said that, rates can vary significantly based on factors such as your location, risk profile, and the value of the property in question.

Ready to Get Started?

How to Start a Junkyard Business FAQs

How does a junkyard make money?

Junkyards generate revenue by purchasing decommissioned vehicles and scrap materials at low costs, dismantling them, and selling valuable parts to consumers or repair shops.

Another major source of income comes from selling scrap metal, along with offering services like towing and vehicle disposal, which further boost their earnings.

Can you take whatever you want from a junkyard?

Yes, in most cases, anything you see in a junkyard is available for purchase.

Prices are usually negotiable, depending on the item’s type and condition, with some junkyards allowing you to remove the parts yourself, while others may handle the dismantling for you.

Are junkyards regulated?

Junkyards are subject to strict regulations and must comply with a variety of environmental laws to ensure they operate responsibly.

This includes obtaining permits for handling hazardous materials like oil and batteries, adhering to safety protocols, and meeting legal standards designed to minimize environmental impact.

What do junkyards do with unsold scrap?

Junkyards typically store unsold scrap on-site until there is enough to sell in bulk to scrap metal processors or recycling facilities.

They may also hold onto it if market conditions are unfavorable, waiting for scrap metal prices to improve before selling.