Leland Stith was a newcomer to the pool industry six and a half years ago when he decided to take the plunge and purchase a 50-pool route. Stith, owner of Blue Fish Pool Maintenance in Vacaville, Calif., says using a broker to arrange the purchase eased some of the worries he had about investing $30,000 in a new business.
“It was good that I was dealing with someone that knew the business,” he says. “I’d use a broker again — especially when I’m spending money like that.”
Buying a route, whether via a broker or not, can provide a quick way to become a pool service technician without having to build a business organically. It can also give someone already in the business a way to add customers to an existing route. That said, when purchasing a pool route, there are factors that buyers need to consider.
Do your homework
When investigating a route, take a look at how geographically close the homes are, whether customers pay on a timely basis, the conditions of the pools and how much landscaping is around each one.
“A route has a value,” says John Malnic, owner of JT’s Pool Service & Repair in Glendora, Calif. “It’s based on how much you can charge a person, how nice a neighborhood it is, and how tight it is.”
Another factor that determines value is how long the tech had the route. “You have payment history, you know that the customers pay for filter cleanouts twice a year, things like that,” says Tommy Falvai, broker and owner of Pool Route Pros in Anaheim, Calif.
“We like to see a route where the seller does advance billing, at the first part of the month. We also like routes where the tech has built-in vacations.” Falvai says many techs get burned out on the business because they don’t schedule time off into their routes.
A route with about a five-mile radius is good to shoot for, technicians agree.
The key to the price of a route, with a few exceptions, is the number of customers and the monthly service fee charged to each one. Most routes sell for 10 to 12 months’ gross receipts, with routes in highly prized locations, such as Hawaii, going for up to 14 months’ receipts. A broker will usually take two months’ worth of receipts as a sales commission.
A buyer and seller often tour the route, where the seller can see if there are any accounts that could be problematic. Malnic recently bought a couple days’ worth of a route to expand his business. “A route like the one I bought was sort of ‘as-is,’” he says. “I talked [the seller] out of a couple accounts that I didn’t like. I saw the pools and they had trees over them or they were in disrepair and I didn’t want to do them.”
Making a choice
When buying a route, the question of whether to use a broker or work directly with a buyer has no right answer. The choice depends on a variety of factors from whether the buyer has already targeted a route and knows the seller to how much money can be invested and how much knowledge they have about the industry.
Working with a broker can be a way to break into the business quickly, says Al Mangin, service manager for Purselley Pool & Spa Service in Fort Worth, Texas.
Like Stith, Mangin bought his first route through a broker when he entered the industry eight years ago. One of his priorities was to tap into a new income stream as soon as possible.
“When you come into this industry and you’re replacing an income you may not have the option to build a route slowly,” Mangin says. “You may need immediate revenue.”
What a broker does
Brokers provide a number of services that include listing routes for sale, help connecting buyers and sellers, and providing contracts.
John Hawke, a broker with SpringBoard Pool Route Brokers , says brokers also pre-qualify buyers. “Out of 10 calls we might get only one that is qualified and ready to buy,” he says.
When a buyer and seller meet, they review the name, address, payment history and monthly billing amount for each account, and also try to get a feel for whether their personalities mesh.
Once a buyer agrees to purchase a route, escrow is opened and the route’s details are verified. At the termination of escrow, 10 percent of the purchase price will be retained — usually for a period of 90 days — from the seller to assure that the accounts transfer smoothly to the new owner. If any accounts are lost during the period, the buyer will be reimbursed for them unless the accounts are lost because of the buyer’s negligence.
The seller also is required to provide training to the buyer if needed.
Going it alone
Pool techs selling a route on their own often advertise online or at pool supply houses. In a situation like this, buyer and seller work out the terms on their own, but they often include terms similar to those used in a brokered sale.
With years of experience in the industry, Mangin says brokers’ fees are too high. Since buying his first route, he has assembled and then sold six routes over the years. The last route he sold was a 40-pool route in California for $38,000. If he were ever to sell again he said he would likely not use a broker to avoid paying the fee.
“The broker is connecting a buyer and seller,” Mangin says. “Sometimes the fee seems a bit excessive for a few phone calls.”
Even though he likes the protection brokers generally offer of a 90-day time period during which any income from customers that drop out must be replaced, Mangin says it’s possible for a buyer and seller to work out any such agreement on their own.
“You can usually do the same thing yourself,” he says.
While a broker’s expertise can be helpful, particularly to a newcomer to the industry, Mangin says if he were to use a broker again to sell a route he would try to negotiate a lower fee. If a seller has ready cash on hand, it might be possible to do this, he says.
“If you have $50,000, $60,000 or $70,000 in cash you’re in a better position than most people in this slow economy,” he says. “Brokers should be willing to negotiate.”
There can be drawbacks to buying a route, as opposed to developing one from scratch. It’s important to note that the buyer of a pool route is not only purchasing the potential income stream from the seller, but also any headaches that a particular pool or client pose.
As such, buyers need to thoroughly investigate what they’re getting into before they make a purchase. In addition, the training they receive from the seller is just the beginning of what they need. It’s important for technicians to continually learn how to better manage their businesses and market their services.