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Valuing And Pricing An Equipment Rental Company
In most cases, an equipment rental company with appraise for roughly 125% to 150% of it’s annual revenue. The discrepancy lies in the exact type of rental business that’s in question.
Equipment rental companies can be broken into three general categories; tool rental, construction equipment rental, and party supply rental. A company that rents a wide range of tools or equipment is going to be appraised differently than a business that specializes in one specific area. It’s common for a rental equipment company to do business in more than one of these categories, but they usually focus mainly on one of the three, with only a smaller portion of their income tied to the other areas.
The key factor in a successful equipment rental company is it’s ability to generate reoccurring income. Compared to other types of business models, reoccurring income makes equipment rental one of the most profitable common business types.
An example of reoccurring income could be a major piece of mechanical machinery for a contruction equipment rental company, such as a bulldozer. Assume the purchase cost of the bulldozer to be $80,000 up front. With regular renting of that bulldozer, more than $80,000 can be earned in a single year. Over the course of three years, $250,000 in rental charges can be earned. The bulldozer can then be sold for half its original value. Additionally, the depreciation over those three years will help to lower the actual cost of the bulldozer even further.
This is only a basic formula for the way that equipment rental companies generate income, but it demonstrates clearly how much profit can be earned under this business model. For that reason alone equipment rental companies are often appraised rather well.