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BUYING A SMALL BUSINESS

Business for Sale: Nevada Pawnshop

Some details about a business offered for sale, including the price rationale and pros and cons of the purchase.
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The business If you dream of Maltese falcons and double-indemnity clauses, here's your chance to buy your own slice of film noir: a pawnbrokerage in one of Nevada's top cities for gambling. Thanks to Nevada's tight control over pawnbrokerage licenses, this four-year-old shop is the only game in its town until 2026. Revenues come equally from interest on loans to cash-strapped customers and retail sales of forfeited goods. The sale includes pawn and retail inventory and two undeveloped licenses, one to expand into the automobile pawn business and one to set up an additional shop in a neighboring city. The newlywed owner already runs a successful pawnbrokerage elsewhere and doesn't want to commute. Now if only Barbara Stanwyck were working behind the counter . . .

Financial summary 1993 1994 1995Gross revenues $728,000 $876,000 $890,000Recast earnings before $32,000 $81,000 $225,000 depreciation, interest, taxes, and owner compensation

Price Negotiable

Outlook The industry's murky reputation doesn't discourage many of the owners of the 14,000 pawnshops in the United States, who view their business as recession-proof. Last year industry revenues were close to $3.5 billion, up by about 300% from revenues 10 years ago. This shop's prospects look good, thanks to its market monopoly. Place your bet on the pawn (loan) line, where net monthly yields are now a heady 9.2%.

Price rationale Coming up with a reliable valuation for a pawnshop isn't as simple as murdering your lover's spouse for the insurance proceeds. Income-based valuation won't work, since so much of a pawnshop's business is cash based that its earnings history is suspect. Neither will traditional asset-based methods, since the industry lacks uniform accounting standards for valuing inventory. One industry leader suggests using a "SWAG" (scientific wild-ass guess) appraisal, drawn loosely from the method used by the few large companies that have gone public: Multiply pawn inventory ($340,000) by 3; add in the retail inventory ($125,000), plus fixtures ($55,000, including depreciation). Then, if the pawnshop operates in a state that tightly restricts trade, add in the current market value of a license ($275,000 to $350,000 in Nevada). That brings the value of this pawnshop to $1.475 million to $1.55 million.

Pros You can grow by developing the automobile pawn business and a second shop. Plus, you get that film-noir ambience.

Cons Do you really want to own a business where you probably won't trust your employees, like your customers, or want your neighbors to know what you do?

-- Jill Andresky Fraser

Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Geneva Corporate Finance Inc., at 800-854-4643.




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