Due Diligence

The pool service industry, like many route-based businesses, typically sells based on a multiple of the gross income from service accounts. Due diligence in this industry differs from what one might encounter when non route-based businesses or other brick-and-mortar businesses. In pool route sales, it's uncommon for an individual to sell their entire company. If utilizing a tax return, a seller's tax return would reflect the income from all accounts, not solely those for sale. Furthermore, it can be challenging to determine the overhead costs that won't apply to your business operations.

If a pool technician also engages in construction, his tax returns would encompass income from both building and servicing pools. Another issue with relying on tax returns is the ambiguity regarding the number of accounts contributing to the net income. For instance, if he owned 150 pools and sold 50, the tax return would still report income for 150 pools, leaving you unaware of the actual number. Therefore, examining a list of accounts and their payment histories is the most reliable method to assess the service fees and set a fair purchase price for a route.

While most pool service companies have the same general expenses, they do not have the same income. Income is what you are purchasing. One of the best ways to get a handle on the monthly service fee as well as what a pool company is charging for repairs is to look at the customer histories. Customer histories should show when an account was billed and when the account paid. The payment history of the customer is one of the most important items to review during purchase.

Customer history often includes the customer's repair history, which can inform decisions about additional charges necessary to achieve the desired profit. If the seller isn't charging for extra items, don't worry; it's an easy fix and a great opportunity to increase earnings from the existing customer base.

When evaluating customer history, the two critical factors to consider are whether customers are paying their monthly service fees and if the rates are unusually low. Low rates are manageable because they can be adjusted upward, which adds equity that wasn't part of the initial purchase. However, extremely low rates might indicate a customer base resistant to rate increases, which is undesirable. There's a minimum threshold for monthly service fees that cannot be undercut, and this is when the expertise of a seasoned Pool Broker becomes invaluable.

The location of your accounts is less critical than how your customers pay their bills. Collections can be challenging in high-end neighborhoods, whereas average middle-class areas often boast better payment records than some affluent neighborhoods.