Selling a pool business requires more than just crunching numbers and applying a basic formula. A friend and colleague of mine in the pool industry, learned this the hard way. Despite having yearly sales of $2 million and an EBITDA of $200,000, he initially believed his business was worth between $600,000 and $1,000,000. However, a deeper analysis revealed that the true worth was closer to zero. One thing became clear to me, if you’re thinking of selling your pool company, it certainly helps to know your worth.

Figuring Out What Your Pool Company Is Worth

Understanding the key components that determine a pool company’s value is crucial for anyone considering selling their business. The primary drivers are EBITDA (earnings before interest, taxes, depreciation, and amortization) and multiples of EBITDA.

EBITDA: The Foundation of Value

EBITDA serves as a fundamental indicator, representing the operational profitability of a business. Investors often look for businesses with a 20% profit margin, valuing them at three to five times their EBITDA. For example, a pool company generating $1 million annually with an EBITDA of $200,000, the estimated value could range from $600,000 to $1 million.

Some simplify the valuation process by associating the value directly with revenue. For instance, a business with $1 million in revenue might be considered worth $1 million. However, this simplistic approach neglects the nuances that savvy investors scrutinize.

Factors That Decrease Value: Beware of Red Flags

Merely relying on the EBITDA formula is insufficient. Investors consider various factors beyond the numbers. For example, a business owner not paying themselves a salary, might falsely believe their profit is the true measure of success. However, investors aren’t just buying a business; they’re buying a sustainable operation. Industries with low profitability or thin profit margins are sure to deter investors.

Moreover, risks such as high turnover rates, equipment issues, or seasonal businesses with no new customers can decrease confidence, making investors hesitant to pay a premium.

Going Beyond Simple Math To Find Value When Selling a Pool Company

As businesses scale in revenue, the multiples of EBITDA change significantly. Larger companies with steady revenue streams may be valued at five to seven times EBITDA, or even higher if they go public. Patents on proprietary technology can further elevate the valuation.

Consider Instagram, a company with only 13 employees valued at $1 billion when acquired by Facebook. Patented technology can attract major players and launch bidding wars, driving multiples into the stratosphere.

What Are Investors Looking For?

Investors typically look for several key factors that can make buying a pool company more attractive. These factors can contribute to the overall value and potential return on investment. Here are some important considerations when selling your pool company:

Stable Revenue and Profit Margins:

Consistent and growing revenue streams are attractive to investors. A pool company with a stable customer base and recurring revenue from services such as maintenance contracts can be more appealing.

Healthy profit margins demonstrate the company’s ability to manage costs effectively.

Customer Base and Contracts:

A large and diverse customer base with long-term contracts can provide a predictable income stream and reduce the risk of revenue fluctuations.

Contracts for pool construction, maintenance, and repair services can enhance the company’s value by ensuring ongoing business.

Reputation and Brand Recognition:

A strong reputation for quality service, customer satisfaction, and reliability can significantly enhance the company’s value. Positive customer reviews and testimonials contribute to brand recognition.

Established brand equity can be a competitive advantage and attract new customers.

Geographic Reach:

A pool company that serves a broad geographic area or has the potential for expansion into new markets may be more appealing to investors looking for growth opportunities.

A diverse customer base across different regions can help mitigate risks associated with local economic downturns.

Technological Integration:

Companies that leverage technology for efficient operations, customer management, and data analysis are often more attractive to investors.

Integration of smart pool technologies and other innovations can position the company as forward-thinking and responsive to market trends.

Experienced Management Team:

A skilled and experienced management team is crucial. Investors often look for a team with a proven track record in the pool industry, as well as a history of successful business management.

The presence of knowledgeable and capable leaders can instill confidence in investors.

Compliance and Regulatory Considerations:

Adherence to industry regulations and compliance with safety standards is essential. Companies with a strong commitment to legal and regulatory compliance are generally viewed more favorably by investors.

Financial Health and Growth Potential:

A strong balance sheet, positive cash flow, and manageable debt levels are indicators of financial health.

Clear growth potential, whether through expansion, diversification, or innovation, is attractive to investors seeking a return on their investment.

Environmental and Sustainability Practices:

Increasingly, investors are interested in companies that prioritize environmental sustainability. This may include energy-efficient pool systems, responsible water management, and eco-friendly pool chemicals.

Market Trends and Industry Outlook:

Awareness of and adaptation to current market trends, such as the increasing demand for home improvement services, sustainable practices, and smart home technologies, can enhance a pool company’s attractiveness to investors.

Becoming More Attractive To Investors

For pool companies looking to sell, the time to enhance value is now. Going the extra mile by pushing sales, increasing social media presence, and staying relevant can significantly impact the company’s perceived worth. Introducing innovative products can lead to substantial increases in EBITDA and future sale value.

Even small improvements, such as a 1% or 2% increase, can translate into millions of dollars. Building confidence in your company not only attracts investors but also maximizes the return on investment when it comes time to sell. In the dynamic pool industry, strategic efforts to bolster value will undoubtedly pay off in the long run.

Determining The True Value of a Pool Company

Valuing a pool company requires a multifaceted assessment that encompasses financial metrics, industry dynamics, and qualitative factors. Investors seeking to determine the company’s worth typically delve into the financial health, examining revenue sources, profit margins, and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).

Additionally, the composition and stability of the customer base, existing contracts, and backlog of projects are crucial indicators of future revenue and growth potential. Tangible assets, liabilities, and cash flow analysis provide insights into the company’s financial structure, while an evaluation of the management team’s experience, brand reputation, and compliance with industry regulations contributes to the overall assessment.

Beyond financial considerations, investors scrutinize the company’s position in the market, competitive landscape, and its alignment with industry trends. The geographic reach, technological integration, and commitment to innovation are also pivotal factors. Evaluating risk factors, including customer concentration and potential challenges in the regulatory environment, is essential. The investor’s exit strategy and the company’s future growth prospects, whether through market expansion or service diversification, add further dimensions to the comprehensive valuation process.

One thing is certainly for sure, selling your pool company these days isn’t always so cut and dry. Ultimately, the valuation of a pool company is a nuanced undertaking that requires a combination of financial expertise, industry knowledge, and a thorough understanding of qualitative factors to arrive at a well-rounded assessment of the company’s value. Finding the right buyer who truly understands what your company is worth is the key to getting the right price.

The 2022 PHTA Builder of the Year shares top tips for service providers looking to get into pool construction

When Kyle Chaikin began building pools, he dove in head-first. He had been servicing pools for more than a decade and just completed his first renovations when a long-time customer asked him to build his hotel pool. “I told him I had never done it before, but I would sure like to try,” he says.

With the customer’s support, he built his first pool. Not long after, Chaikin found himself with two more hotel jobs and his service company progressing into the construction space — a move he says he never intentionally planned.

Fast-forward past a merger in 2011, and Chaikin is now president of Long Island, New York-based Chaikin Ultimate Pools and was named the 2022 Builder of the Year by the Pool & Hot Tub Alliance (PHTA). His company still services pools under the business arm The Ultimate in Pool Care, and Chaikin himself oversees residential and commercial builds — many of them high-end — on the construction side.

To build or not to build

For both service companies and builders alike, the grass often seems greener on the other side. Builders often turn to service to maintain business with customers they built pools for, but the draw from service to construction is just as strong.

“There’s always a push to get into construction from the service side,” says Chaikin. “Sometimes it works out great. In my case, it seems to have worked out, and we’re very happy, and I know lots of companies that have done it.”

However, Chaikin advises that service companies weigh the pros and cons of making the change carefully, as the big jobs in construction can mean “big money, but also bigger headaches.”

“There’s always something, there’s always an issue, whether it’s with a piece of equipment or not being able to get a piece of equipment, or perhaps even the timing of it,” he says.

Scheduling projects can be especially challenging on the commercial side, where you often must meet the demands of customers while at the mercy of general contractors’ timetables.

However, while the world of construction can bring big risks, it can also yield big rewards.

“Monetarily, if you’re doing it well and doing it right, there’s money to be made by being a good builder who does the job properly and on time,” says Chaikin.

How to build a construction business

For those service companies determined to make it big as builders, Chaikin shares his top tips for getting started and ramping up.

Tip #1: Get the prerequisites first.

“The best advice I can give is to go through the proper channels,” Chaikin says. Before starting, you’ll want to have the necessary education, license, experience, and insurance needed to build safely and properly.

• Education and licensure — You will want to obtain and maintain the Certified Builder Professional (CBP) certification if you are to build pools that are economic, efficient, and safe, according to Chaikin. You can earn all four levels of certification, from CBP to Master CBP, through the PHTA GENESIS® education program.
• Experience — “Classrooms are great, but get out in the field and check it out first,” says Chaikin. If you’re starting at square one, his advice is to subcontract out a builder and observe the job start to finish until you can understand and avoid common obstacles yourself.
• Insurance — Make sure your insurance will cover construction work. The insurance you need to build pools is not the same as the insurance needed to run a business or service pools.

Tip #2: Get the proper people in place.

Ensuring you have the correct workers building your projects is critical, as the pool of qualified skilled builders is currently small.

“If you’re building a swimming pool these days, even in a backyard, you need a pretty high level of knowledge to make sure that you’re building it properly and engineering it correctly,” he says.

As safety is paramount, you’ll want to make sure those who are building the pool and overseeing the build know all the building codes in the jurisdiction in which you are working. Be aware that commercial and residential codes are quite different. The laws will vary in different locations as well. For example, in New York an engineer is required to design all the hydraulics and structural components of commercial pools.

Tip #3: Get pricing right.

Supply chain issues have begun to resolve, but builders are still dealing with some unexpected price increases for materials. Chaikin says including escalation clauses or force majeure in building contracts can help provide financial relief. However, this can be difficult on the commercial side.

“These general contractors and developers have become savvy, if not shark-like,” he says, adding that most will refuse escalation clauses and look for someone else.

If you cannot protect against escalation, you will need to make sure that all parties stay on schedule, so your project is priced properly. You can limit your liability by getting a substantial completion date.

Tip #4: Get involved in the industry.

Chaikin says his involvement in the industry has been the most beneficial thing for his business. This means committing to continuous learning, as well as helping to teach others.

“If all our peers are doing the same education tracks, the more knowledgeable everybody is, the better educated everybody is, then the better the industry will be.”

Photo Credit to Chaikin Ultimate Pools

Hayward®, a leading manufacturer of pool products, has launched an enticing new program called “Get Paid to Upgrade,” aimed at pool servicers, technicians, and builders. The initiative rewards these professionals with a $50 payment for each installation of a qualifying Hayward product, replacing a competitor’s pump, heater, filter, or other select equipment. The campaign not only benefits pool contractors by providing an additional revenue stream but also demonstrates Hayward’s commitment to supporting pool repair companies and their clients.

Hayward’s “Get Paid to Upgrade” program has been designed to be effortless and efficient for pool technicians. Participants can access the program website, www.Promotions.Hayward.com, through any mobile device or desktop. Pool techs are required to enter their email address, upload before and after installation photos, provide the new Hayward product’s serial number, and answer a few questions. Once the verification process is approved, Hayward offers a choice of a $50 digital reward from a variety of partner options, ranging from food and home improvement to electronics and outdoors.

The “Get Paid to Upgrade” campaign encompasses a broad selection of Hayward’s pool products, including pumps, filters, heaters, sanitization systems, water features, lighting, and more. This extensive lineup offers contractors a range of options to upgrade their customers’ pools, while simultaneously earning rewards for their efforts.

A Win-Win for Pool Contractors

Pool contractors like Scott Reynolds, owner of Purpose Pools in Las Vegas, have found the “Get Paid to Upgrade” program to be a boon for their businesses. Currently, his firm ranks second in the nation for submissions to the program. Reynolds described the initiative as a “no-brainer”.

“It’s an opportunity to generate some additional revenue and also to serve our clients,” said Reynolds, “what we do is take the rebates and use them as bonuses for our team members. At times, we’ve also used that bonus to discount certain Hayward products for seniors on a budget. It’s a great representation of how well Hayward supports pool repair companies like ours and of course, the clients that we serve.”

“We’re working together with Hayward on our local community outreach program,” said Reynolds. “We make donations regularly here in the Las Vegas area to local charities and nonprofits. Specifically, there is this one initiative called Project 150, where we’re helping underprivileged high school students get ready for this upcoming school year. Hayward was quick to jump in and get involved and are matching a large donation that we’re making to help some kids out before school starts,” said Reynolds, elaborating on ways his firm is collaborating with Hayward at a local level.

Listen to our entire conversation with Scott Reynolds on the Pool Magazine podcast.

Reynolds certainly isn’t the only one leveraging the rewards offered by Hayward. Pool companies like his are taking advantage of ways they can boost team morale by using the earned bonuses to incentivize their technicians. Moreover, companies are also passing these rewards on to homeowners, enabling them to offer discounts to those homeowners in need.

The success of the “Get Paid to Upgrade” program reflects Hayward’s commitment to supporting pool repair companies. By offering rewards for upgrading customers to their premium pool products, Hayward helps pool technicians expand their offerings and enhance customer satisfaction. The program not only strengthens business relationships but also fosters a sense of collaboration between Hayward and pool contractors.

Hayward’s “Get Paid to Upgrade” program is proving to be a popular program for pool contractors, providing them with an opportunity to earn additional income while delivering top-notch products and services to their clients. The program’s ease of use and broad range of eligible products make it an attractive proposition for pool technicians looking to upgrade their customers’ pools. Moreover, the rewards earned through the program foster goodwill and enable contractors to support their team members and provide discounts to clients in need. As pool contractors continue to cash in on this beneficial campaign, Hayward’s commitment to supporting the industry remains unwavering, further solidifying its position as a leader in the pool products market.