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How do Pool Route oppotunities differ from asset or entity purchases?

I've been researching pool route sales opportunities. It appears these ads are actually selling existing customer accounts vs. company assets, entities, etc. Can anyone in the pool service business tell me how these "business" transactions work, are they industry standard, etc.? Also, how difficult is it to transfer accounts to a new owner who is new to the pool service industry without realistically expecting to lose a certain percentage of those customer accounts after customers learn that their account has been sold? This seems like a risky business transaction since there are no real assets involved in the transaction. Please advise. Thanks.

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Answers (1)
David Collins
Glentyde Capital Advisors, Inc.
CEO / Owner
Mecklenburg County, NC

Tom, I'm not in that particular business and so I can't respond with the specificity that I'm sure you'll get from "insiders", but a couple of points apply in your case which are kinda common to many similar scenarios.

As you've gathered, what's being offered for sale is an intangible asset--an existing customer base. The lack of "real" assets in the deal doesn't really make it more or less risky; the riskiness is in the possibility of overpaying for the acquired (intangible) asset. So what's an intangible like this worth?

Getting a credible answer to that one requires a lot more data and analysis, but here's one question to keep in mind: How much of your resources (time and money) would it require for you to build the same asset (existing customer base) from scratch? The "replicate from scratch" number, whatever it might be, doesn't fully "value" the asset for you, but it does give you a sort of reality check on the price being asked by the seller.

With respect to customer attrition, some erosion of a customer base will always occur just about any time a biz changes hands (or makes any significant changes, for that matter). You'll probably want to price that reality into the deal. But also look at the other side of that coin: Given an existing customer base, what are your prospects for growing that base by doing something different and better than your predecessor?

I don't know how much negotiation flexibility these particular deals provide, but one concept might be of use to you: A lot of times when a biz buyer and seller can't agree on the value of an asset, they put an "earnout" provision into the deal. Essentially, the buyer says to seller, "You say this asset (business, customer base, whatever) is worth X. I'm not so sure, but I'm willing to bet on it. So I'll pay you 70% of X at closing, and if I see for myself after running this company for a couple of years that it really is worth X, I'll give you the other 30% (and even more, if the numbers prove it was worth even more than X." So maybe (with a capital M), you'd have the ability in one of these deals to negotiate an arrangement whereby you pay part up front and part later, with the "later" portion being subject to an adjustment, depending on how many customers walk during the first, say, 3 months.

Sorry I can't be more specific, but I'm sure the pool biz "insiders" will fill in plenty of details. I just wanted to toss out a couple of ideas that might be of use. Best of luck!

Jun 8, 2009

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