Planning ahead
By Connie Lannan

Planning ahead

How to prepare for a successful transition

After a year of dealing with the coronavirus (COVID-19) pandemic, some equipment and event rental store owners might see an opportunity to retire or divest of their interest. For others, now might be viewed as an opportune time to buy an existing company or start a new business.

No matter what, industry experts say the process is not something you want to do on the spur of the moment, but one where it is critical to strategically plan and do the necessary research before making
a move.

“Understand that this is an industry that requires a long-term approach. If you go for three yards at a time, you will get a touchdown; go for a home run and you’ll get a strikeout,” says Ed Latek, president, Latek Capital Corp., Lake Forest, Ill.

For instance, those who are looking to “greenfield” a rental operation, or start from the ground up, need to “fully understand the market from a geography and competition standpoint,” says Gary Stansberry, president, The Stansberry Firm, Boerne, Texas.

“If I were thinking of going into the industry today, I would ask, ‘What are the demographic characteristics of this market, what is the population and growth expected to be and who is already in the market — nationals, independents?’ I would try to get an idea of where there may be a gap. You have to understand who your potential customers will be,” Stansberry says.

“Many customers would rather deal with someone local than someone national, but the big caveat is that everything else needs to be equal — the equipment condition, delivery and service response time. You have to understand what the rental rates look like. The biggest thing is what the product offering would be. What is your niche going to be?” he says.

Even if you are part of a family-owned rental operation that wants to expand the business’s reach by acquiring an existing rental operation, employees who want to move into the ownership position of the rental business they work at or an investor who wants to purchase an existing rental operation, planning and research are key because “the industry has matured,” says John Haener, CPA, president, Vendo Rental Solutions, Rockford, Mich.

“On the general construction and industrial side of the business, there has been significant consolidation. So, there are much larger businesses now than there were 20 to 25 years ago. There is still an opportunity and so many operators who are being successful at the local level. Access to capital has always been a challenge for rental businesses. If you want to support growth, you have to continue to invest in the business. The ability to access capital, both through the cash flow that you generate out of the business as well as borrowing to speed up your growth, is a definite component to the success of these businesses. We see these businesses growing faster and being larger. The barrier to entry to support that requires additional capital,” Haener says.

The same is true if you are looking to exit the industry. There are so many factors to prepare for, such as how do you want to exit — transition it to a family member, look for a third party to help with it or sell it to an equity investor?

“Those all involve a different path,” Stansberry says. “You need to know your situation and know what your alternatives are, so it is not a surprise because, most likely, your rental business is your single largest asset.”

This is a huge decision that can have major ramifications on the current rental owner’s future wealth, so industry experts recommend that the process not be taken lightly or done quickly.

“Planning sooner for retirement is, of course, better than later,” Haener says. “Ideally, it would be at least five years out to consider the type of entity — e.g., C-Corp, S-Corp, LLC — and make changes, if possible, for tax advantages. Oftentimes there are real estate considerations to take into account and properly structure. The owner needs to consider a possible post-sale employment or consulting term in their planning horizon, such as staying on for three months to two years after the sale. There is an opportunity to address important factors such as the business’s financial performance trend, the quality of the asset base, the presentation of the facilities and other factors that can help maximize value in preparation for a sale.”

Dan Crowley, founder and president, Peer Executive Groups, Coopersburg, Pa., takes exit planning to a whole new level. He has all rental operators who participate in the advisory groups that he runs have a legacy plan that includes an exit strategy. That means they are working on how they will exit while they are in the prime of running or planning to take over the ownership of their companies.

There are many caveats to entering or exiting the rental industry. The latest challenge on both aspects, particularly to those in party and event rental, has been the COVID-19 pandemic. The following stories will take a closer look at the pandemic’s impact, the various factors rental operators on both sides of the aisle need to consider before making a move in either direction, who one needs on their team to help successfully achieve their goals and highlight the stories of those who have made it through the transition successfully. 

Connie Lannan

Connie LannanConnie Lannan

Connie Lannan is special projects editor for Rental Management. She helps plan, coordinate, write and edit ARA’s quarterly regional newsletters, In Your Region. She also researches, writes and edits news and feature articles for Rental Management, Rental Pulse, supplements, special reports and other special projects. Outside of work, she loves to bake for others, go for walks with her husband and volunteer for her church and causes she believes in.

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