Although no hot tub retailer is the exact same, when it comes to selling the business, the advice doesn’t change: plan, prepare and be intentional.
As part of our succession planning series, here’s a look at what happens when an outside buyer successfully purchases a hot tub business.
Planning backward
When it comes to creating an exit plan, the sooner, the better, says Nicole Martins, a Miami-based estate planning attorney and founder of Martins Law Firm.
“Business owners have so much to think about on a daily basis, but one of the most overlooked components are all the small steps that should be put into place for a successful exit,” Martins says.
Owners should start creating their exit plan three to five years before the sale, or longer if the business is especially large, she says.
Sue Rogers, who sold Oregon Hot Tub in 2019, says she looked long and hard at her financial situation to ensure she could retire.
As a banker’s daughter, she knew her numbers had to come with an extra cushion. In 2016, she started calculating how long she wanted to continue in the industry as many of her mentors and close friends were hitting their 70s and retiring.
“I met with various small business brokers,” she says of the first steps. “I was learning what added value to the business. I was learning who bought businesses. I was learning what they look for. I wasn’t interested in what the company was worth. To me, that wasn’t really relevant. I was trying to understand the formulas.”
The common denominator she found for selling her business — whether to an employee or an outsider buyer — remained the same.
“No matter what the economy is doing, you must make a profit,” she says. “Make a profit every month consistently [before thinking of selling].”
She knew an outside buyer could easily throw a big number her way. But what she needed to know was what amount she needed to maintain her lifestyle into retirement. Fidelity Investments, which offers asset management and planning, recommends people save 10 times their income by age 67 to retire comfortably. Other factors like retirement age and lifestyle matter, too.
For Rogers, that started with ensuring her home finances were in order, which led her to keep meticulous records for her business as well. Her advice to others looking to sell is to keep finances organized and have a deep understanding of the entire financial picture before announcing your desire to sell.
What you’re trying to understand is how much money you need — absolutely must have — to live the life you’re planning. Rather than asking, ‘What is my business worth?’, I suggest figuring out what you need and start to build that.”
Sue Rogers, Oregon Hot Tub
“What you’re trying to understand is how much money you need — absolutely must have — to live the life you’re planning,” she says. “Rather than asking, ‘What is my business worth?’, I suggest figuring out what you need and starting to build that.”
For Rogers, that meant having discussions with her partner about what their life would look like when they both retired. She advises other retailers looking to sell to remember all the perks they won’t have when they do sell their business, like a company car.
Rogers says after she retired and before her partner retired, they spent money on things they deemed “capital expenses” including replacing cars and buying another house.
Because of her preparation, Rogers felt more than ready when she got a call from Leslie’s asking if she was willing to sell her business. In fact, she had just finished wrapping up her 2019 budget and her company’s numbers were fresh in her mind. Following the call, she had dinner with Leslie’s representatives in January 2019.
With her leadership’s blessing, she hired a business transaction lawyer and moved forward with a deal to sell. She had a letter of intent in April 2019.
Then, crickets.
Pool season hit and Leslie’s was swamped, as expected. She finally heard back in late September, and Leslie’s was ready to close by Oct. 1.
“It was a great experience,” says Rogers of working with Leslie’s. “They were very nice; they were honorable. They did everything they said they would do.”
Looking at the long haul
Tim White, Rocky Mountain Hot Tub Holdings chairman, is in the business of acquiring dealerships in places he loves visiting.
He had heard of Mountain Hot Tub’s reputation, and while purchasing another business, he let the broker at Compass Advisors, who represented Kelly and Shirley King of Mountain Hot Tub, know that he was interested in their model.
Buying Mountain Hot Tub: Listen to episode #7 of The SpaRetailer Podcast to hear Kelly King share about how — and why — he originally purchased Mountain Hot Tub.
It so happened that the same broker managed the deal between the Kings and the original Mountain Hot Tub owners. A year later, White got the call that the Kings were ready to do business.
As an experienced outside buyer, White says timelines don’t usually happen the way buyers or sellers expect.
“It does require patience, and you have to put your timelines aside,” he says. “Our goal is to own our businesses indefinitely. Our mindset is when someone is ready to sell, we want to be ready for them with open arms. The decision to sell is a personal one.”
Every transaction is different, but the more organized both parties are before the selling experience, the smoother it is.
“It is helpful when somebody knows they want to sell to work with their accountant to get their financial files and business organization files ready ahead of time,” he says, noting tax returns are especially important.
Martins agrees having an experienced accountant is an essential part of selling a business. It’s not the only aspect, though. She advises owners to mentally prepare for a multistep goal-planning process.
“We often tell clients that a successful exit strategy is their ticket to freedom,” Martins says. “Business owners have spent immeasurable amounts of time, effort, sacrifice and often tears to create and grow their businesses. At some point, most entrepreneurs want to reap the benefits of their efforts in the sale.
She says the best way to understand what it takes to exit successfully is to meet with the right professional and discuss your short- and long-term goals.
“Most companies are not financially ready for a sale; a solid CPA will ‘clean house’ to ensure the financials are up to date and position the company for the most success at the time of sale,” Martins says. “Make no mistake, a successful sale does not happen out of the blue. It takes planning, forethought and great counsel from an attorney and a CPA.”
Stack plans atop plans
Even with diligent planning, things can go awry.
Brian Quint, former owner of Aqua Quip in Washington, can attest to that.
Quint had 10 stores around the Puget Sound area after merging in 1999 with Carlson Pool & Spa. Originally, the business partners had planned for their kids to take over the business.
As it turns out, life often has other plans, Quint says.
“We weren’t convinced our kids were going to be our exit strategy, but that was our hope and aspiration,” he says. “They have to have the desire, passion, commitment and ability to run the business; otherwise, you’re setting them and the business and all the other coworkers up for possible failure.”
Quint says it turned out to be a “natural selection process” as the adult children started to get married, have kids and move on to other life goals. His son-in-law stayed on board, though, much to Quint’s delight.
By the time the realization struck that it wouldn’t be the next generation running the business, Quint and the Carlsons were all in their early retirement years.
Around 2018, Quint looked at key employees as potential buyers. After hiring a consultant to create a structure for two employees to purchase the business, the transaction fell apart in the “11th hour.”
Looking back, Quint says he would have planned a bit differently. He cautions others looking to sell to do the footwork ASAP to avoid the pitfalls he had and advises owners to have conversations and a strategy well ahead of retirement. In his mind, even 10 to 15 years is not too far out to plan.
“If I could turn the clock back, we should have started earlier and worked harder at making [internal succession] work,” Quint says.
Unbeknownst to Aqua Quip’s owners, Leslie’s was looking for hot tub companies to buy.
In July 2018, Quint got a call from Leslie’s director of acquisition. The company was looking to expand in the Pacific Northwest region.
Aqua Quip Aquired by Leslie’s: To learn more about how Leslie’s acquired Aqua Quip, listen to The SpaRetailer Podcast episode #28 with Brian Quint as he discusses the process and the steps his company took to prepare.
Given the dead-end they hit with internal succession, the Quints and Carlsons decided to see what Leslie’s could offer. Early in July, the CEO of Leslie’s and other support staff flew to Seattle to meet with Aqua Quip’s owners.
“I had robust financials, which they were attracted to; we had some really good years,” he says. “Their timing was good. They came in at our prime.”
Between July and October, Quint says he tediously prepared documentation for review. By mid-October, he had a solid offer that included a payday he was comfortable with and an agreement Aqua Quip would have a leadership team squared away for Leslie’s.
By Jan. 26, 2019, they secured a deal.
“They weren’t shipping anybody up to run the business; they wanted a stand-alone management team,” he says. “They bought companies with the teams in place to run the business.”
Part of that leadership team included a three-year employment contract for Quint to stay on and the Carlsons retiring at the time of sale. Quint officially retired in January 2022.
Even now, Quint is surprised that a large business ended up buying his homegrown one.
As for the payout, Quint says reading all the fine print matters. He received a check payment of 85% at closing. Leslie’s held 15% for an 18-month retention to ensure all assets were covered like tax bills. The retention was put in escrow, and once all bills were paid, the funds were released.
As an official retiree, Quint is now busy traveling, volunteering, consulting and visiting with friends and family.
Continuing the legacy
Leaving a business in the hands of an outside buyer comes with a lot of trust — especially when the company is a large conglomerate.
For Rogers and Quint, getting the blessing of employees who will stay can make the transition easier. For them, part of that included making themselves scarce as they stepped further out of the role while the new leaders took charge.
And for a smaller businessperson doing a buyout, like White, keeping key managers with a stake in the business also made him feel better about buying Mountain Hot Tub. He advises owners to have faith in leaving their role to someone else.
“I think there is a tendency to have your fingers on everything, but it makes your business more challenging to sell,” White says. “One thing Kelly and Shirley [King] were amazing at was building the team underneath them to prepare the business to be sold. They also had managers willing to put their own capital up to expand.”
White says he knew Mountain Hot Tub was a successful company, but when two key employees stepped up at the time of exit to say they wanted to be part-owners, that further cemented White’s confidence in buying.
You are in the hot tub business, and your biggest asset is your reputation. We [and other buyers] want to buy businesses that are working.”
Tim White, Mountain Hot Tub
“It’s incredibly meaningful and a sign to me as a buyer that there are folks willing to have skin in the game to be your partners,” he says. “That was a great signal for me, and it’s worked out really well.”
Additionally, White says setting up the company for success means following what works. For his new company, focusing on philanthropic efforts is a culture he intends to keep.
“You are in the hot tub business, and your biggest asset is your reputation,” White says. “We [and other buyers] want to buy businesses that are working.”