Pool Service Business Valuation & Worth

How to Value a Pool Service Business

If it is time for you to decide if now is a good time to sell your pool service business, then the valuation of a pool service company must be the first thing you determine. In today’s topsy-turvy world, it seems like there would be too many variables to even take a stab at this prospect.

But valuing a pool service business is really quite simple.

If you are interested in learning “How much is my pool service business worth,” you only need to determine the cash flow and this number will give you all the information that you need.

Cash Flow Shows Value

We know how it is. Sometimes when you hear words like EBITDA, adjusted EBITDA, SDE (Seller’s Discretionary Earnings,) add-backs and the like, your eyes glaze over and you start to sweat. We know you want what’s best for your company, including a high value if you ever decide to sell. But with all the terms and rules and figuring you can do, there is really only one thing that matters: cash flow. Even if you are someone that was worried about taxes and getting certain other deals out of owning a business, discerning the cash flow is the best thing you can do to determine your pool service valuation.

You may be asking yourself, "How much is my pool service business worth?"

You can start understanding the value of your company by looking at the add-backs and recurring items in order to ascertain the value.

Habitual Elements

Compensation for owner
Money owed to other family members
Vehicle costs such as gas, insurance, monthly payments
Cost of medical insurance coverage for owner or family
Meals, travel, entertainment not 100% related to business
Any phone expenses
Country club, golf club, or other club fees
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One-Off Items

REVENUE ITEMS

PPP or EIDL loans
Sale of asset

EXPENSE ITEMS

Any major business purchases
Repairs and improvements
Insurance claim losses not reimbursed
Bad debt expenses
Consulting fees, legal fees, and accounting fees
Other major expenses

Value Growth

When it comes to the valuation of a pool service business, you need to calculate it based on the cash flow, as well as the multiple of the cash flow that the buyer is willing to pay. With a pool service valuation, the buyer will pay two times, four times, six times, etc. of the given cash flow.

Multiples: First Things First

If you are trying to calculate your pool service business worth, relate the cash flow to the size, with a higher cash flow therefore leading to higher multiples.

Under $500k free cash flow – 2x-4x / Valuation range $500k – $2m
$500k-$1m free cash flow – 3x-5x / Valuation range $1.5m – $5m
$1m-$2.5m free cash flow – 4x-6x / Valuation range $4m – $15m
$2.5-$10m free cash flow – 6x-10x / Valuation range $15m – $100m
$10m-$25m free cash flow- 10x-20x / Valuation range $100m – $250m
$25m+ free cash flow – 25x+ / Valuation range $600m+

As you may or may not know, cash flow is related to how long it will take to pay off the purchase price of the business. If a buyer purchases it for two times the cash flow, it will take two years, four times the cash flow will take four years, and so on. This is important information when it comes time to sell. When it comes to multiples, buyers will go higher if they feel that the business is more stable. Smaller businesses can be more volatile because they cannot diversify as much or have a variety of revenue streams. Bigger businesses tend to have a bigger base of customers as well as more of a geographic reach. And a bigger business would have more cash flow, increasing the multiple.

Multiples: The Secondary Implications

You might think that the above information is all that is important in a sale, but these secondary elements are very impactful when it comes to selling your business.

New Construction (the lower the better – aim for less than 20%)
Maintenance Contracts (the more contracts the better – 20% increase is strong)
Growth of the Revenue (number grows each year- 20% increase is strong)
Reputation Management via Marketing (based on star rating and Google reviews)
Generation of Leads (sustainable and frequent lead generation desired)
Technician Crew (the more crew the better, with more than ten being advisable)
Integration of Technology for Workflow (ServiceTitan or HouseCall Pro is a plus)
Ability to Work Independently From Owner (Less owner involvement is good. If the owner can step away for a few weeks it is great. )

So, how much is my Pool Service Business worth?

All you need to do is multiply the free cash flow by the multiples to determine your pool service valuation. And don’t forget the other elements of selling a business. The sale will be debt free, so you will need to take care of any debts before the transaction is completed. You and the buyer will also decide how much cash should be left in the business account.

Take careful note of that. Another important idea is that usually businesses are sold with anything used to make the business run, such as trucks and equipment. And don’t think that the large asking price is all going in your pocket.

You will generally clear 70-80% of the asking price after the fees and taxes are paid, any in the clear before it is sold. You will also need to establish an agreed upon amount of capital in the business before you close. And don’t forget that fees will definitely eat up some of your profits.

Why Work With Brentwood Growth

Access to Buyers

Over 400 private equity firms and consolidators that are actively looking to purchase.

Confidentiality

Ensure the sale of your business remains confidential to avoid disruptions for you.

Industry Expertise

More than 20 acquisitions with transactions from $80 million with an average of $4 million.

Valuation

Learn the value of your business and receive support with pricing to the market.

Negotiation

As your mediator, we work with you and the buyers to make sure both parties are satisfied.

Experience

Lead by a team with 75+ years of experience. Our experience ensures a smooth experience.