Selling as an Exit Strategy

Handing Over Pool Biz 918 Feat

Rod Sterling tells a story about a family-owned pool and spa business in which the married proprietors were getting ready to retire. They had two stores and owned the building where the main business resided. Although they had rock-solid financial planning in most areas of their lives, the worth of their business was a complete mystery to them.

“They were ready to close the door and throw the keys away,” Sterling recalls.

As the president and founder of Sterling Advisory Group, a company that specializes in helping family-owned pool and spa businesses properly value their assets, Sterling knew better. With a little assistance, the couple was able to position their business properly and sell it off. They initially expected to get nothing more than some fond farewell wishes from regular clients. Instead, they walked away with $400,000.

Sterling keeps his focus on small pool and spa companies, but it’s a specific portion of that field that inspires his most-animated advocacy.

“I call myself an evangelist for the family-owned business,” he says.

It’s precisely the dominance of family-owned businesses in the industry that is creating a vexing dilemma as a generation of successful entrepreneurs reaches retirement age. Who is going to take over the shop?

GENERATION EXIT

The hunt for fresh-faced contributors isn’t unique to the leisure aquatics occupation, but there are factors that make it more complicated.

“The challenges that all industries currently face — and pool and spa is one of those — is how they attract the new guard to come into the business,” notes Alex Antoniou, director of product development at APSP. “People don’t even realize that it’s a profession. They see a guy with a pickup truck, a pole sticking out of the back and some buckets and chemicals. And they don’t even realize what’s involved with getting into the profession.”

When many pool and spa business owners set up their shingles decades ago, the predominant model for a family-owned operation was that it would stay in the family in perpetuity, getting passed down to kids and other relations over the years.

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That approach shifted, in no small part, because the often backbreaking, unpredictable and seasonally impacted work associated with aquatics inspired parents hope for better lives for their kids. And for that younger generation, setting aside their own ambitions to return to run the family pool business was less than appealing.

With legacy ownership a less-likely option, many pool and spa professionals edging toward the end of their careers are instead looking externally to find someone interested in taking over the business. But selling to an outside party has its own hurdles, and the transition isn’t likely to be quick.

“It’s going to take a year to 15 months to sell,” Sterling warns. “Selling a pool and spa business is not easy because we’re a small tribe to begin with.”

With a tight market of emerging professionals — and therefore a slow-growing population of likely buyers — it becomes critical for owners to get all their assets in order to increase the chances of a smooth, lucrative transition.

STEPS TO THE SALE

“If you want to sell your business now, you should have started preparing for it at least three years ago,” Sterling advises.

A good first step is establishing a team that can provide support in shaping a plan. For most business owners, this means giving a more official structure to a group already on hand.

“An owner should have a formal or an informal board of advisers,” says Sterling. “And they probably have an informal set of advisers that they’re not even cognizant of — someone in the industry they listen to, a manufacturer’s rep they trust. It’s the minister they trust, or it’s the guy that owns a plumbing business they trust.”

The board of advisers should ideally include a banker, lawyer, an accountant and somebody that owns a business outside the industry. In quarterly meetings, the process of preparing to sell the business needs a prime place on the agenda.

It’s also useful to find somebody who has sold a family-owned businesses and talk to them about the experience, asking detailed questions about the steps they took and the setbacks they faced.

All of the business’s documentation should be in order. When it comes time to sell, owners will need to have all their equipment and building leases on hand, as well as at least three years of both tax returns and P&L reports.

As for the business itself, Sterling advises the lead-up to the sale is the best time to invest in it.

“When you’re going to sell your business, you need to put your foot on the gas,” he insists. “You need to have your inventory correct, you need your advertising up.”

A robust commitment to the business keeps its value high, and few things make a pool and spa operation look as appealing to potential buyers as a large number of maintenance accounts. In addition to the recurring revenue stream, these accounts are a measure of customer goodwill. That has value.

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As a bonus, the maintenance accounts provide a bulwark against big online businesses that use their size to undercut the local mom-and-pop shops on parts and other physical components.

“Amazon and other online retailers can ship products to somebody’s house, but they can’t come through the internet and go and out and vacuum your pool, clean out your skimmers and get rid of dead frogs and snakes and leaves,” Sterling says. “Someone’s physically got to do that.”

And the stronger everything looks from the outside, the less likely it is for word to get out that the business is for sale. Selling a business isn’t like putting a house on the market, where a sign planted in the front yard alerts every passing car. In this case, discretion is key.

“You’ve got to keep it graveyard dead quiet with your employees, with your vendors, with your friends,” Sterling says. “Because 99 percent of the American public, when they hear someone is selling their business, they say, ‘Oh, they must be in trouble.’ That’s the first thing that comes out of people’s mouths.”

There can be even greater repercussions if skittish vendors catch wind of the sale, leading them to cut credit lines. That in turn makes it tougher to keep inventory levels up, and the business will look less healthy to prospective buyers.

Secrets can be tough to keep, though, especially if a business happens to be in a cutthroat market where less-scrupulous competitors feel it’s advantageous for them to sow the seeds of doubt. If rumors do take hold, a business owner should counter the narrative, getting the message out
that they’re selling precisely because the business is profitable. Make sure customers know it’s a planned exit and they’ll be taken care of when the new owners come in.

WHEN THE TIME IS RIGHT

For anyone selling a major asset, there is naturally going to be some fretting about timing. Because the pool and spa industry isn’t particularly beholden to market whims, there’s little benefit to intensely scrutinizing the business landscape, looking for the right opening. Instead, business owners should simply gauge how they’re feeling about their work.

“You will know, emotionally and spiritually, when it’s the right time to sell,” Sterling says. “You’re not going to market-time it.”

RELATED: Finding the Next Generation

Maybe the owners have gotten burned out, or the business has outgrown their capacity to comfortably run it. Family changes, health issues or general weariness can drive the decision.

No matter the provocation, Sterling suggests that owners recruit a qualified professional to help them sell the business, in much the same way that most people opt to use a realtor to put their house on the market.

Selling a business isn’t the same as running a business. More importantly, it’s essentially a full-time endeavor. Trying to stay on top of the demands of communicating with prospective buyers and the other rigors of carrying a sale from initial stages to closing can quickly become burdensome, distracting from the needs of the business itself.

“Typically, you’re going to sell your business one time, and you don’t need to learn on the job,” Sterling says.

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