comments on valuing RMR and contracts

August 16, 2013

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Comments
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Ken

Just a comment on the email from Keith on August 7, 2013. Lack of contracts in a transaction is a serious problem, but not an insurmountable problem. We were asked by the Probate Court to manage and sell a company with 800 accounts for an owner with Alzheimers. We were not able to locate any monitoring agreements so we prepared new one year agreements for all of the customers (we purchased Ken’s contracts) and mailed them out. Within 30 days we had received over 500 signed agreements and began selling them at 34X. It took us a few more months to get the other agreements signed and we ended up with about 18 customers that would not sign so we sold them as “leads” for 12x each and let the purchasing company visit them and attempt to sign them up. Many of us consider a customer that has gone past their original term and has renewed several times as a “seasoned” customer. I put as much value on these customers as one with a brand new contract as these customers have had multiple opportunities to cancelled and have stayed with the company.
Mitch Reitman
S.I.C. Consulting, Inc.
Fort Worth, TX
WWW.SICC.US
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Ken
Valuing The RMR accounts. I recently helped a Buyer buy 800 accounts with no Contracts. He paid 20 times for those accounts. I helped him with the “Ten Step Program” to net new Contracts on 80% of those accounts. He then sold them to a quality buyer for 36 times. He got all his investment back in 8 months, still services all the accounts for the investment buyer, he sold 640 accounts, for a profit of $121,000 He still had 160 accounts he still owns, plus 150 accounts added on during the first year (most of which came from his referrals from the 800 accounts). The Big issue in Buying or selling is still the value of the operation side of the Business, that is my specialty. That business from referrals produces 10 to 12 new monitored accounts each month. Again that is Equity that is not on the Balance sheet.
Dennis Riley
www.beltwaybrokerage.com
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Response
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Surprisingly I get calls all the time from prospective sellers and buyers of alarm accounts. Many don't have proper contracts and some no contracts at all, especially for all of the services being provided. What seller with "contract deficiencies" don't get is that the buyer is going to steal your accounts for a song [under 20 x] and promptly get the subscribers to sign new contracts, thereby increasing the equity of those accounts well in excess of what was paid for the accounts. Sure not all accounts will sign right away, but I think Mitch's experience of receiving 500 signed contracts back out of 800 is a pretty typical example of what you can expect; maybe a bit high but if handled correctly as I am sure Mitch did, you can get a better return. And that's only within a month or so. The rest of the accounts should sign contracts within a fairly reasonable time and you should lose very few accounts. For a quick valuation of your company go to WhatsMyAlarmComanyWorth.com. One thing you can be sure of, to maximuze the value of your accounts use the Standard Form Contracts - the All in Ones are the best choice.
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