Follow up to inflation and alarm industry and should you be relying on RMR and are contracts extortion July 8, 2022

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Follow up to inflation and alarm industry and should you be relying on RMR and are contracts extortion
July 8, 2022

Follow up to inflation and alarm industry and should you be relying on RMR and are contracts extortion

Ken,
          Thank you for publishing my comments on account values and inflation on June 27, 2022. Of course, by mid-day there was a comment on social media about RMR ruining the industry and how people like you and I are destroying what used to be a great industry. The commenter went on to explain that relying on RMR for profitability was stupid and that getting contracts was extortion, etc... Of course he probably typed these comments on his cell phone that he probably paid $99 down and $25 for, from his truck that he leases for $500 per month, then went back to his office that he leases for $1,000 a month, and printed my comments on his printer that he paid $69 for but which uses $120 toner cartridges.
          RMR is nothing new, in the early 20 th century the phone and electric companies spent millions to wire up customers and relied on the monthly service charges to cover their costs (and cover their costs they did). When I graduated from college I didn't have the cash for a house so I rented one for a few hundred dollars a month.
          RMR is real and valuing assets based upon recurring revenue is not unique to the alarm industry. Years ago I used to value apartment complexes. The value of an asset like that is based upon future cash flow from a couple hundred tenants, typically on one-year leases. The tenants may come and go, they may stay for twenty years, but as long as the owners replace the tenants who leave with new ones, the building should produce income. The owners typically repaint, re-carpet, and repair the unit between tenants without charging them. Not much different than creation cost for an alarm installation.
          So before someone launches a dissertation on how building a revenue stream that provides consistent, automatic, and reliable 80% to 90% margins, they should take a look around. Embrace RMR and do it the right way, determine the value of a new customer, do what it takes to acquire them, and, most importantly, get them to sign a Monitoring (and or service, inspection, etc...) Agreement.
Mitch Reitman

Response

          I haven’t seen the “social media” comments but I do run across alarm dealers who don’t have contracts and don’t charge RMR; they are rare indeed and when I do hear from them they are seeking either absolution or quick advice how to catch up after 50 years of operating with their head up in the clouds or somewhere else.  They want to sell and now realize that they have nothing to sell.  A customer list of customers that may or may not call if they need an alarm repaired isn’t going to fetch much of a price.
          Just about every industry has guidelines for valuing the business and arriving at a fair selling price.  It’s common to use a formula that includes annual or monthly net revenue.  We could express valuation in the alarm industry using annual revenue rather than monthly revenue; the bottom line would be the same.  Monthly is how it’s commonly charged so that’s how the multiple is applied, typically.  I’m not sure how anyone in the alarm industry, or any other industry, thinks they can ignore all accepted standards and end up doing anything other than walking away from their business when they are done struggling a lifetime making ends meet.  Hey, if that’s what floats their boat, so be it.
          For those interested in the finer things in life and being able to retire some day on something other than Medicaid, you need to recognize that there are accepted ways of doing business, any business.  In the alarm business there are common practices that are now so well accepted it’s ridiculous to argue against them.  You simply don’t do business without contracts; without E&O coverage; without after-install services for which you charge RMR.  What is actually the alternative?  No contracts; no insurance and no RMR?
          Look, Mitch, at least you haven’t been accused of ruining a great industry all on your own.  I seriously doubt whoever wrote that in social media is part of any great industry and never will be unless he smartens up and starts getting his accounting and tax advice from you and his legal advice from me.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
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Garden City, NY 11530
516 747 6700 x 301
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