Question - one year contracts and valuation
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Ken,
Thanks for all the good advice you give. You once wrote that is very important to have signed contracts from all your customers.
I have all signed contracts with all my clients. But I am getting a lot of resistance when asked them to sign a 3 or 5 year contract. The majority of my customer base only signs for a year to year contract. When in selling accounts how does this present to the buyer?? A good or bad acquisition?? And is there anything that I can do to make it more appealing.
Thank you,
PG
New Jersey
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Answer
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First, you can get a quick and inexpensive idea of what your alarm company is worth by going to WhatsMyAlarmCompanyWorth.com.
Now for the free advice. One year contracts are definitely worth less than 3 or 5 year contracts. I would put the difference in the multiple at 10x. That's a sizable discount. Instead of 32x you might only get 22x. You know your RMR, so do the math.
Why such a drastic discount? You should know from reading these articles that I favor getting new contracts rather than relying upon automatic renewal clauses. Auto renewal clauses may require advance notice, conspicuous notice in the contract, or may be restricted in other ways. You may be, and most likely are or will be, limited to month to month renewal, as a practical matter. A month to month contract will provide protection from claims if there is a loss, but not likely to have high potential value because these contracts are essentially "at will"; terminable on 30 days notice.
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Question - fire alarms
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Ken
We purchased your monitoring contract and subsequently sent to everyone of our monitoring accounts. Our accounts are 95% UL Fire. We have numerous accounts that have dug their heels in and don’t want to sign our new contracts. Due to our naiveté when we originally signed these accounts, we signed our customers contracts. My question is can we have these accounts add our contract as an attachment to their contract? Will we still have the same legal rights? Do we need to have our contract signed as an attachment?
Thank you,
KP
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Answer
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The proper contract you should be using is the Fire All in One. This covers the sale and installation, inspection, service and monitoring. Everything you should be doing for a fire alarm system.
If you've already installed fire alarm systems than a sales contract is no longer appropriate. But if you're providing service, inspection and monitoring then you should insist on getting those parts of the Fire All in One signed.
You can attach your contract to a subscriber's contract and add that "to the extent that subscriber's contract contradicts your contract, your contract terms prevail".
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comment - licensing for integration systems
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Ken
I wonder what licensing requirement (if any) is there for network technicians. They seem to do all the work you just described as not permitted. Network techs install cabinets, network racks, panels, trays, they pull wires, install power outlets in cabinets and racks, even install IP cameras and network enabled alarm and temperature sensors. Basically network technicians do anything that would normally require several licensed trades.
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Response
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Though some licenses may permit other work that would require a different license, for the most part I don't think that to be the case. You're licensed to install electronic alarm systems, but you'll need a Consumer Affairs Home Improvement License to install cabinets and do woodwork. To install lighting systems you may need a low voltage license. If you give medical advise while you're there installing the alarm system you probably should have a medical license.
Be sure you understand the scope of your work and what licenses you need. You can't be doing electrical and plumbing work without those licenses, and home improvement license is needed for most work in the residence.
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Question - agreeing to install less protection than needed
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Hi Ken
We have a prospect that wants us to secure a trucking hub that has over 50 overhead doors. There is protection from an old system in disrepair and they want us to install a new system which will not include those doors. Would not protecting the doors put us in a bad position or could it be an act of gross negligence if we acted on their request. They don't want to spend the money and we noted that they have storage of other peoples good in transit and that concerned me. Our sales rep signed them up however at this point I have refused to accept the contract, they say they will sign off on not protecting them. Since the corporate office is out of state we would not know who signed it and what they would claim later.
Brett B
Chicago
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Answer
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The contract should express your concerns regarding the system limits, and so should a separate Disclaimer Notice. Once you have that you can proceed. You are not required to work outside your subscriber's budget. Your subscriber has a right to install something less than you think is adequate protection as long as the subscriber acknowledges that it is assuming the risk, and that is made clear by various protective contract provisions in the Standard Form Contracts. Note however, this does not apply to fire alarms. You have an obligation to install a proper, to code and AHJ approval, fire alarm system. Anything less exposes you in different ways.
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