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comments on Is it time to sell your alarm company and where will the money go May 28, 2018

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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comments on  Is it time to sell your alarm company and where will the money go
May 28, 2018
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comments on  Is it time to sell your alarm company and where will the money go from May 18, 2018 article
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    Another few weeks and we will be into the second half of 2018.  If you've been dragging your feet on updating your contracts, get a move on.  So far we have only minor changes for the 2019 versions.  One change, thanks to Miss Doubtfire, we removed Arch connection for fire alarm systems.  
Update your contracts now if you have 2016 or earlier versions.
    Although I think every article on this forum, day after day, contains pearls of wisdom, advice definitely worth at least what you're paying for it, once in a while an article stands out as better than usual.  I had one on May 18, 2018, and I know because I got positive responses and comments, see below.  I did find a spelling error and I'm disappointed I didn't hear from Stanley O, who calls me only when he finds a spelling error.  I am re-printing the article below in case you missed it, with the spelling error corrected.
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Well written Ken! 
Randy Larkam, President
AE Security
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KEN
    As always, you have great most valuable information for your READERS. 
     As you know I have been on the BUYING & SELLING of Alarm Security Businesses all my life.  I have purchased about 32 small Alarm- Security Businesses over the last 39 plus years.  I would pay on an average about $200,000 for these small companies. Build them for 3 or 4 years then SELL them for over $1 million after I added 1,000 plus in new R.M.R. accounts.  I now spend my time Helping People with their “EXIT STRATEGY”.  
    Yes anyone today can get Top Dollar for their R.M.R. (Recurring Monthly Revenue).  I like to SELL those Life Safety Businesses twice.  The key is to sell the Operational side of the Business to the same Buyer for an additional large amount of money.  
    There is a dozen ways to get a much higher price for that part of their Business.  I will give any of your readers a FREE Valuation of their Business and at the same time I will suggest a dozen things they can do to make their Business more Profitable which will get them a much better price when they are ready to sell.  Thanks Ken again for the great job you do for our industry.  
Dennis Riley

www.lifesafetyassociation.org
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Response
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    Dennis, most of my readers do like "free", so expect to hear from a few of them.  Thanks for contributing.  BTW, Dennis is listed on 
The Alarm Exchange under the broker category.
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Ken,
    Fewer Dealers Are Realizing Profit Upturns.
    The percentage of SDM 100 companies reporting increased profits has been steadily declining – from 53 percent in 2013 to 45 percent in 2015,down to 40 percent in 2017.
Source SDM Magazine May 2018.
Rory Russell,  business broker
AFS 
518-366-5111
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Response
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    Rory, most of my readers are not in the SDM 100, only about 90 of them.  Of the 90, over half use [or at least purchased] the 
Kirschenbaum 
TM Standard Form Agreements.  I suspect their RMR has grown.
    And, not all companies are lucky enough to be in the top 100, in fact, most aren't, obviously.  I suspect that over 90% of companies using the 
K&K Standard Form Agreements experience growth, not lose, of RMR; significant growth.  The Standard Form Agreements, particularly the All in One Agreements, are designed to increase RMR, first by clearly offering the RMR items and, second, pricing each RMR item separately.  Subscribers on the fence regarding adding equipment or services are quickly encouraged, perhaps challenged is the better word, when asked to sign the Disclaimer Notice acknowledging that you have suggested and offered more equipment and better security services, which the subscriber is declining.  [it's almost as effective as when I tell a client they don't have to follow my advice, but I am going to require them to acknowledge in writing that I gave it and they don't want to follow it - I have had to do that only a few times and can't recall any client who didn't then accept the advice].
    Your business is representing Selling alarm companies [and you do a great job] so naturally you think it's always a good time to sell.  But keep in mind that for every sale there is a buyer.  Sure there are is always the right time to sell, but if you run your business properly the time won't be defined by failure, but by success.  And, that's the best time to sell.
    Rory is also listed on 
The Alarm Exchange under the broker category, and I appreciate his contributions to the forum.
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Ken,
    One of your best columns. 
Thanks, 
Nick
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Great article Ken! 
Kelly Bond
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Here is the original article:
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Is it time to sell your alarm company and where will the money go
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    If you've managed your alarm business consistent with the advice I've suggested on this forum you may be, and should be, sitting on a considerable nest egg.  Whether it's time for retirement or just a new adventure, the question is it time to sell my alarm company may cross your mind.  
    For many of you the equity you have in your alarm business constitutes the bulk of your net worth.  Thus, your net worth is intractably entwined with the equity in your alarm business.  Sure, your home and maybe other investments have increased in value, but not likely keeping pace with the increase in value of your alarm company.  
    It's really a rather simple exercise in arithmetic:  your RMR under contract times the multiple being paid.   Fortunately for the alarm industry, the multiple has been fairly constant for a long time.  Depending on how you have run your business, particularly which contracts you use and how you get them signed, you can expect 35 times, give or take 5 times.  That leaves a 10 point spread, and if you're on the lower end, you deserve it.  If you're on the higher end, you deserve it too.  Being smart should have its advantages, and in this business it’s measurable, 10 times.
    Of course other factors can influence your decision to sell.  I will leave out the obvious, illness and death.  The main factor I am thinking about is growth, or the opposite, reduction in RMR.  This can be caused by more competition, an aging account base, change in your available selling territory, internal issues with employees, from sales to technicians.   Loss of a major account can sometimes be the reason your balance sheet goes from black to red.  So, shrinking RMR may be the reason that you consider selling out.
    When you sell out you'll be faced with new challenges.  Where to place your new found liquidity.  You should think about that before you decide to sell, not after you are staring at your check, wondering where to deposit it and how to invest it.  
    Let's put aside life style issues.  Those issues, not just illness and death, often override a careful decision based on economical or financial considerations.  You may want to spend more leisure time with family or pursue hobbies.  Not everyone is a workaholic and loves the alarm business, even if successful.  You may want to be a lawyer [a decision you'll regret no doubt].  
    If you should sell depends on personal as well as business considerations.  From a purely financial consideration, however, I think the question is, can you do better with your nest egg than keeping it in the alarm business?
    Assuming you like your work, and can still do it, you need to consider your entire compensation and benefit package.  Only you know that number.  Now figure out the net proceeds you will end up with after a sale of your alarm business.  It's a check with a number on it.  You have to deposit it, and then you need to invest it.  Unless you're "young" and willing to take risks with your life's work nest egg, you'll want to be conservative.  Putting money out there for "hard money" loans sounds good, until you don't get paid back.  Taking chances on high yield corporate bonds also sounds good, until you don't get paid back.  Investing in higher paying municipal bonds, like Puerto Rico or Detroit bonds, sounds good, until you don't get paid back.  
    Soon you find out that "safe" investments pay between 2 and 3%.  If your alarm company is not kicking better than that out for you then something is wrong.  If your alarm company is not growing faster than the DOW or NASD or any fund your relatives keep telling you they are in and making a killing, something is wrong.  
    You didn't sell yet, and you have time to make it right.  If everything is already right, you have time to make it better and rake it in while you're waiting for a better time to exit your alarm business.  If you do sell, play it safe with your money.  You're too old to start over in the alarm business.
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THE ALARM EXCHANGE

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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
ken@kirschenbaumesq.com
516 747 6700
www.KirschenbaumEsq.com