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More On Valuation Of Your Company / Follow Up On Service Contract - November 24, 2016



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MORE ON VALUATION OF YOUR COMPANY
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Ken,
    This is a great topic for discussion!   As always, Ken, I appreciate you providing a forum like this for important industry issues to be discussed and all of your efforts to enlighten other industry professionals. Sharing knowledge and resources is key to staying ahead of the game and I am grateful for the opportunity to learn from (and contribute to) these conversations. 
    I’ve been performing alarm company valuations for decades at this point and there is one key concept I’ve noted time and time again:    
    Each alarm company business valuation is completely different and the appropriate strategy for accurately determining the value of a company changes on a case by case basis. 
    While recurring monthly revenue is an important source of income for many companies in the alarm industry, not all companies have this contracted revenue coming in. However, that does not necessarily diminish a company’s worth and it certainly doesn’t mean that a company won’t sell to a qualified buyer ready to pay top dollar. Revenue can be coming in through time and material (T&M), including fire sprinklers and extinguishers, monitoring, suppression equipment, testing, inspections and services. Though these may not be sources of RMR, they are valuable sources of annual revenue nonetheless. And they can be quantified through an assessment from an experienced broker, even if they don’t quite fit the traditional RMR or EBITDA valuation models.
    AFS has successfully worked with sellers in the past that have had no contracted revenue, and with sellers who rely heavily on RMR. The job of an experienced alarm company broker is to help a seller accurately determine the value of their organization and then find a well qualified buyer that will pay top dollar for his company no matter what kind of revenue the company is bringing in. As a broker, it is important to pay attention to the details that will help a seller put the most money in his pocket. This means paying close attention to the types of revenue that the company is generating, and finding a buyer that will pay a high price for that revenue. 
    I so appreciate your monitoring and service contracts, which has made my selling of security fire integration companies with all types of revenue much easier. I highly recommend that resource to other security fire Integration dealers and brokers in our industry. 
    For those who want to learn more about alarm business valuations and finding qualified buyers, be sure to check out our website, www.afssmartfunding.com, especially the News section (www.afssmartfunding.com/news/) where you’ll find relevant articles about everything from how to determine a company’s worth to how to identify and promote your business’ unique selling point. You’ll also find tips for selling your alarm business for maximum profit in our eBook, To Sell or Not To Sell, a valuable resource for both brokers and alarm company professionals looking to sell now or in the future. 
Rory Russell
Acquisition & Funding Services
www.afssmartfunding.com
(518) 366-5111
info@afssmartfunding.com
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FOLLOW UP ON SERVICE CONTRACT FROM NOVEMBER 15, 2016
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Ken,
    I bet that the "very large company" has a contract on every customer, no contract is a non-starter for successful companies.  One loss without a contract could wipe out NNJ, which will make him anonymous not by choice.
Bart A. Didden, Executive Claims Manager
Security America Risk Retention Group - SARRG
877-872-1266
bdidden@securityamericarrg.com 
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RESPONSE
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    Failure to put your subscribers under a Service Contract with RMR [included in the residential or commercial All in One Agreement, and the commercial fire alarm agreement] is a mistake, twice.  First, as Bart points out [and as Claims Administrator for SARRG he knows] providing repair service without a contract invites tremendous risk and potential liability, enough to wipe you out.  Second, and the reason I mention it in connection with the article above regarding valuation, you are short changing yourself by not developing Repair Service RMR under contract.  Is the message only going to sink in when you're ready to sell and can't understand or believe that you're not going to get anything, zippo, for your historical repair service that you charge on a per call basis, without contract.  If you average $10,000 a month in repair service you could be leaving $300,000.00 on the table when you sell.  Use the All in One and check the Service RMR box.  
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