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Comment on preparing to sell your company / Disclaimer Notice questions
March 11, 2019
Notice:  I'll be at ISC West in April.  Call our Concierge Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304 to arrange a private meeting and consultation.  Meetings and consults will be No Charge during the ISC show.
Comment on preparing to sell your company from article on March 1, 2019

            Regarding Mitch Reitman’s advice “Remove cancelled customers from your Accounts Receivable system.  You can still attempt to collect, but there is no reason to have them on your Ageing [sic] getting further and further past due.” 
            I think he means you should write-off canceled accounts after a reasonable period of diligent collection. If I was performing due diligence and found a company taking real debt off their books, I’d be out the door before my laptop was closed. 
            Alternatively, if a seller made a report of performing RMR, and handed that over together with an aging, it would demonstrate competent management, since carving out non-performing RMR is part of most every acquisition.  
            Performing RMR is typically defined as making a payment within the last 90 days, but might vary for an alarm company with mostly commercial customers billed quarterly, for example. 
            The condition of a company’s aging is critical in determining its value. The gross / net attrition numbers and 90+ days RMR are key indicators. A flag would stand out in a company that kept their books the way Mitch suggests. 
            Last thought, bank’s lending agreements have specific guidelines about how much money can be loaned based on the borrower’s aging. A borrower could be in default or even committing fraud by manipulating their books. 
Peter G
            Seems to me that you and Mitch are essentially in agreement.  Canceled accounts should be off the books.  After all, canceled accounts are no longer accounts.  They are either in collection or in the garbage.  No one is suggesting that you remove slow paying accounts or accounts that might not end up being “Qualifying Accounts”.  Not every deal has “Qualifying Accounts:, and even if the deal does have that criteria it may only apply to accounts that the buyer is paying for.  A buyer may insist that you also turn over your non-paying, late paying, canceled or non-qualifying accounts as part of the deal.  Sort of thrown in, along with the used inventory and the list of customers for whom you have no contracts but perform service or inspection [that’s right, you’re not getting paid for that – so wise up and get those services under RMR].  
Disclaimer Notice questions
            Does our central station need to be listed in the subcontractor section of the Residential Disclaimer Notice?
            Should someone from our company sign the Disclaimer Notice or is only the customer signature required?
            The name of your central station does not have to be identified on the Disclaimer Notice, and it also doesn’t have to be named in the All in One agreement with the subscriber.  The central station is a subcontractor and covered by the All in One provisions.  An essential feature of the All in One is that it not only covers the alarm dealer, it also covers all subcontractors, and that includes the central station.
            The Disclaimer Notice is not an agreement.  Rather, it is an acknowledgment by the subscriber of the statements in the form, both pre-printed and added.  While the All in One agreements have sufficient language protecting the alarm company, the Disclaimer Notice emphasizes certain issues regarding scope of engagement, allocation of risk and liability.  Many issues are covered by the pre-printed language, but there is room to add other items that may be applicable to your specific deal with this subscriber.  For example, if the subscriber demands that you omit protection that you know would open you to criticism because your installation departed from accepted practices and norms, you need to indicate that on the Disclaimer Notice.  The subscriber tells you not to include motion detectors and not to protect the back kitchen door, you know you have to document that somewhere.  The All in One Schedule of Equipment and Services generally is used to include equipment and services that are included, not those that are not.  In the above example, it would be a good idea to include the omission in coverage in the Schedule because it is so obvious.  But the use of the Disclaimer Notice will help both you and the subscriber focus on other equipment and services that are available and not being provided.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
516 747 6700