From the Mailbag...
My husband and I have owned our Rental Company for over 10 years now, and we've been thinking about selling. I'm finding it hard to come up with a price. Generally, I know that if you depreciate all your rental equipment through the years, you have to pay back the depreciation. I know I can get Goodwill just for the name. What is a good way to set a price on a rental business? I would greatly appreciate any advice you could give.

RTO Online Response
Thanks for writing. How to open a new store, and how to sell an existing one are the two most common questions asked by readers. First let me say that I am not an accountant. You should consult an accountant prior to selling your business. As to selling price...there are some 'rules of thumb' to go by.

Forget about depreciated value of rental merchandise. Any money owed by you to the IRS is between you and Uncle Sam. It will not, in all likelihood,  effect the selling price of your store. Its the revenue being generated on a monthly basis that is key. The 'Goodwill' you speak of will be the difference in the depreciated value of your rental inventory and the selling price. I'm sure your relationship with customers is superb, but that relationship is meaningless to a buyer who will likely change the name anyway.

Rent to Own stores typically sell for between 6 and 10 times monthly revenue (sometimes more, but only when certain conditions are met ie: you are selling multiple stores that will give someone 'turnkey coverage' of an entire market)

Large chains will pay between 6 and 8 times revenue for an "agreement only purchase" (where your agreements are transferred to an existing location and your storefront is closed)

They will pay between 8 and 10 times for an entire operation. This is typically done only in markets where they don't already have target penetration (Rent a Center has stated in the past that 1 store for every 25,000 population represents saturation).

I have given you ranges of 6-8 and 8-10. The selling price will vary within these ranges based on other factors including everything from age of inventory to total remaining balance of agreements etc, etc, etc...

Bottom line...The selling price is determined more by the buyers desire to enter your market with a head start than any other factor. Look at it from the buyers perspective and ask yourself, "Can I reach profitability faster by starting from scratch or pay the asking price?" At 6 times revenue, it's a
no-brainer...at 10 times revenue, you've got to do some math.

Lastly, depending on your market, your store may be worth more to an independent regional operator as opposed to a large chain. Check with them first. It never hurts to have multiple bidders!

I hope this helps, or at least gives you a place to start.

Sincerely
RTO Online Research

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