KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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is it time to give up your own central station / Free Webinar Sept 20
September 18, 2018
Special Notice: Free Webinar Sept 20 for New York businesses - sexual harassment training seminar
For those who haven't heard, prior to January 1, 2019 ALL NY EMPLOYERS must train all employees on Sexual Harassment. New York DOL has put out a simple overview available here, which also contains simple sample policies -
The draft policies provided by the state are template and do not contain the legally required complaint form.
What's involved: disseminating somewhat specific paperwork, setting up reporting procedures and actually holding a training.
If you prefer the customized policies or for us to help with training, contact Taryn at (516) 747-6700 x. 310 or by email at TCrimi@Kirschenbaumesq.com.
Join Kirschenbaum & Kirschenbaum's Employment Law Department today, September 18, 2018 at 12 to 1 PM for a Webinar on how to train. We also will discuss how K&K is available to train by webinar or in person on this topic.
Register here - https://attendee.gotowebinar.com/register/5764510059886011139
Free Webinar: September 27, 2018. 12 to 1 PM EST. Round table discussion on preparing your company for sale [we may get to buying considerations too]. Business brokers and consultants will join the discussion. Mitch Reitman, Robert Shoremount, Barry Epstein and Rory Russell are our Round Table Experts. Join us by reserving your spot: Click here: https://attendee.gotowebinar.com/register/597273801145255682
is it time to give up your own central station
We have a central station with about 4000 customers. At your recommendation, we are considering outsourcing the monitoring. What are our first steps?
We are currently on a quest to get all of our customers on your contracts; it is taking a while. We know of a central station that recently shut down and started outsourcing the monitoring, and it was a complete disaster. I don't want to make their same mistakes.
* Do you have a recommendation for a tried and true central station?
* Do you know what costs I need look forward to?
* Will I need new contracts for my customers?
* Will the central station need contracts with our customers?
* Do I need different insurance?
* Will the central station require me to additional insure them or indemnify them, or is there a mutual indemnification?
I'm not sure where to start or what to expect if I go forward.
For an alarm company that operates its own central station, with or without some monitoring for other alarm companies, the issue whether you should close your own central station and outsource to one of the wholesale central stations, is one of the most critical decisions you will make. Often it's emotional as much as economical because your alarm operation and its central station was started by your grandfather or father. It's just the way you've always done business.
Emotions aside, you rationalize that your central station operation is expected, or required, by your subscribers; that your central station provides the best services for your subscribers. The arguments for maintaining your own central station are many, but here's the bottom line.
Let's start with the most basic issue, money. Let's assume you can get monitoring for your accounts at a blended rate of $6 per month. It would take only minutes to find a central station that charges $2 or even less per month, and some that charge more than $6 and of course some accounts will require a higher monthly charge, video monitoring or fire for example. Higher charges are usually means higher cost of monitoring, and you will have those costs just like the wholesale central station. The difference is that the wholesale central station can spread fixed costs among many more accounts; it can effectively charge less per account than you can.
I've been using the same number for operating a central station for too many years, so I may be off a lot. Your central station has got to be costing you at least $75,000 a month to operate. That's in dollars, not your supervisory responsibilities that you have 24/7 and the toll that takes on your time, you and your family. You have to staff the central station with operators and that's 168 hours per week per operator. You need equipment, software and licenses. You have communication expense, office space, additional insurance, regulatory fees, etc. Trust me, it costs more than $75,000 a month, and that's doesn't include the space the central station occupies.
You have 4000 accounts. If you outsource it will cost you $24,000 a month. You will be saving $51,000 a month. That's over $600,000 a year in operational savings. You could afford to put me on retainer.
How about services. How can you possibly compete with a wholesale operation when that is its only business and it monitors tens of thousands of accounts? It can afford all the latest software and provide all the services that a monitoring central with only 4000 accounts can only dream about. Sure, your central is working for you, but you could be offering so much more if your central station was better equipped and staffed.
The transition isn't easy, but it can be done with little or no disruption. The transition starts with finding the best wholesale central station that fits with your operation. It doesn't have to be in your city or even your state. What it should be is listed on The Alarm Exchange, because the most reputable central stations are listed there and they have remained on The Alarm Exchange only because they have the highest dealer satisfaction [otherwise they would be off the list fast]. So that answers your first question. Some wholesale central stations specialize in particular accounts and services, such as fire, or pers or video monitoring. Others may be best for run of the mill residential monitoring. Pricing is all over the place and may have more to do with their advertising costs than their services. Paying more isn't necessarily going to get you a better wholesale central station, so investigate carefully and choose wisely. And, you don't have to select just one central station. You have different kinds of accounts and it may be wise to select a central station that's a better fit for particular accounts. You may lose some of your leverage in pricing when you split up accounts, but you're still going to be saving plenty over what you were paying when monitoring yourself.
You will find that cost varies greatly. I can't really tell you the difference between $2 and $6 dollars a month, other than $4. Is one better than the next? You need to ask about the resources and services each provides. You don't need to pay for services you don't need but you do need to make sure your customers are protected. You are the one who has contracted for performing monitoring services and you are responsible for selecting an appropriate central station. Cost of monitoring is definitely not the only criteria that needs to be considered.
You use the Standard Form Agreements and you will not need to get new contracts signed by your customers. Of course you need to continue to update your contracts and get your customers to sign updated contracts, but that's the case whether you outsource your monitoring or retain it in-house.
Most if not all of the central stations on The Alarm Exchange will not require that your subscribers sign the central station contract if you are using a Kirschenbaum TM Standard Form Agreement. There's good reason for that. The Standard Form Agreements provide the best contractual protection you can get and that protection is extended not only to you but to the central station and any other subcontractor you outsource to. If the central station is smart it will require that you produce a contract for every subscriber you want monitored. An even smarter central station will require that every system be tested and that every signal programmed is identifiable. You, the central station and your subscriber should have a clear understanding how every type of signal is going to be handled.
You will need to make some changes to your insurance, and that's linked to the next issue, indemnity. The wholesale central station will require you to provide indemnity. If the central station is smart, and if you are smart, you will add the central station as an additional insured on your policy. There should be little or no premium increase for this change.
You should start this process by "interviewing" potential central stations. Make sure the central station offers the services you require. Find out its operating software. You will want a central station that has the same or compatible software that you use in your central station. That will make the switch-over easier. Also you want a central station that can import your subscriber data from your central station records because that will avoid having to provide data for all of your accounts, something you can do manually, but to be avoided if possible.
You can and should negotiate with the wholesale central station. Cost for services is something you can deal with. The legal terms in the contract you will be presented with is something best left to me. Be sure you don't spend too much time investing yourself in the wholesale central station so that you can't go elsewhere if the legal terms can't be agreed to. It's important to make a preliminary selection based on resources, services, equipment and software, but before spending too much time ask for the Dealer Agreement and send it to me for modification. The charge for marking up the Dealer Agreement is minimal, even less if I wrote it for the central station. I know what can and can't be changed. If a central station is so inflexible at this stage of the relationship then it's probably best to move on to the next selection who may be more accommodating. Keep in mind that in your case you have tremendous bargaining power because of all the accounts you will be transitioning. If you had few accounts then your bargaining strength would of course be much less, but you would still want to have me review and modify the agreement with the central station. Keep in mind that you could be starting with one account and hopefully soon have 4000.
I am confident in my advice that you will have savings of at least $500,000 per year. If you had 25,000 accounts I might think differently and suggest that you can afford to operate your own central station. Even that number of accounts would probably not be profitable to monitor yourself. I am confident that within 6 months, if not immediately after the transition is complete, you will be relieved and making more money. And, interestingly enough, I believe your company will be worth more, not less. Most buyers are paying a multiple on gross RMR, so it doesn't matter that you are paying a central station for monitoring. The buyer may be happy with that wholesale central station. The buyer would most certainly close your central station. Why? Because the buyer won't have the sentimental feelings you do; it will be dollars and cents, and it will make much more sense to close the central station and outsource that service.
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Kirschenbaum & Kirschenbaum PC
Attorneys at Law
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