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follow up careful who you sell to / is purchasing alarm accounts a good investment May 16, 2018

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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follow up careful who you sell to / is purchasing alarm accounts a good investment
May 16, 2018
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follow up careful who you sell to from May 3, 2018
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Ken
    The buyer's integrity is the most important part of selling your company/accounts. I sold my company of 2,200 customers to a person who gave me full rein in retaining customers after the sale .  I was able to approve all letters and policy’s after the sale.  Any customers concerns were directed to me . I was also permitted to get contracts signed up to one year after the sale. The result was  zero Charge back, happy customers, happy  buyer and  a very happy seller .
No name please
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Response
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    That's the way it's supposed to go down.  
  *  Good faith on both sides
  *  full disclosure
  *  a simple and 
clearly written contract so everyone knows the deal [if you have to ask your lawyer what something means then you need a new lawyer.  Why are you signing a contract that you can't understand or is so complex you can't even bring yourself to read it?  Unfortunately, that is the kind of contract used by many of the "frequent buyers", and if they have bank financing the bank attorneys will be sure to add even more confusion to the mix [and run up the legal fees on the deal too].  

    You need to know who your buyer is and trust them, unless it's an all cash deal with no representations, warranties and restrictive covenants, an "as is" deal.  BTW, you're not going to get that kind of deal.  So if your buyer is litigious, a history of even one lawsuit or dispute, you better find out why.  You don't want to be involved in the next dispute.  You may think this advice is fanciful.  Well, I have done hundreds of alarm transactions and I can't recall a single lawsuit arising out of a sale.  In the last couple of years I've had to step in to resolve disputes where other attorneys handled the transaction.  In those cases the contracts were so poorly written that the parties were left to interpret the meaning in their own way, to their benefit, and the attorneys handling the case were gone, on to the next deal, with the same contract of course.  
    Can you imagine selling your company, closing shop, giving up all your employees, maybe moving to another state, getting fully involved with your retirement or next business plan, and then having to be pulled back to deal with a seller who not only starts canceling your accounts to eliminate the hold-back, but is jockeying around to threaten you with claims beyond the hold-back.  What a nightmare.  Trust me.  You can call me at that point after you used some other attorney, but you won't have my sympathy. 
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is purchasing alarm accounts a good investment
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Ken 
    I am obtaining a SBA loan.  Is it  a good idea to purchase alarm contracts with some of that money?
A
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Response
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    First of all, yes, this is a real question that I just received.  I am going to assume that the inquiry came from someone in the alarm industry, because if you're not in the alarm industry then you have no business buying alarm accounts unless you have a hedge fund behind you.  The alarm industry is a licensed and regulated business and requires a level of education and skill.  That aside, there are two models for growth in business, the alarm industry too.

    Both models have their cost.  You can't grow by sales without investing in sales personnel and marketing.  There is a cost to that and you have to budget and figure out what it is.  With luck, your efforts will pay off and you will grow your RMR.
    Acquisition of accounts is, of course, much faster.  Overnight you create your new account base.  You know the cost because you just paid for it, or you have financing and you know the monthly payment you have to make to the seller or your bank.  That cost can be significant.  It is not uncommon in the larger deals where the buyer is backed by bank financing for the bank to have lots of reporting requirements.  These reporting requirements can be so extensive that you will have to hire or retain skilled people who know how to prepare the reports.  Sometimes the bank will even insist on a certain level of employee, a CPA for example, and that will add to your cost of the acquisition.  If you are lucky the accounts you buy will generate enough money for you to service the accounts, pay your acquisition and carrying costs and turn a profit.
    Looks like the common element for both models, sales or acquisition, is luck.  I know that sounds contrite, but it's probably 99% accurate.  We know that the industry, like all businesses, loses accounts through attrition.  While the seller may have a reliable attrition rate history, there is no guarantee [beyond the Guarantee period in the purchase contract, if there is one] that the buyer's attrition rate will be the same or close to it.  It's an educated guess, at best.  Besides historical attrition, there could be other factors that influence the success of the purchase.   How about after the guarantee period there is some natural disaster, a significant change in technology, or, maybe more likely, a few busloads of door knockers, arriving to tell you "hello, we're your new neighbor".  If you're employed the model where you build the accounts through sales you will have spent the money to acquire the accounts.  If you financed, you still owe the money, even if your cash flow has reduced to the point where you can't carry the debt load.  Either way, I suspect, you're screwed.
    I always look at a half empty glass.  But it's also half full.  Despite my conservative reservation for the acquisition model, I think that it has been the most popular for significant and immediate growth.  Also, that model apparently works because plenty of very smart people use that model with great success.  It may actually be the easier model to follow.  Believe it or not, finding bank financing may be easier than finding a bunch of trained door knockers, though finding alarm accounts for sale may also prove challenging.
    And, let me conclude by observing, I haven't seen any more effective growth in this industry than the door knockers.  I'm not a marketing expert, and marketing experts are welcome to comment, but I think it would be hard to put together a marketing campaign that can compete with door knocking.  We all see the commercial ads from some companies and I assume they are effective.  I don't know how that kind of marketing compares with the expense of door knockers.
    Investing in the alarm industry looks to be a good bet, but like all businesses, you have to know your business and engage the right personnel and professionals to assist.  That, and lots of luck.  
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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