should you hold out for 90 times RMR July 25, 2018

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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should you hold our for 90 times RMR
July 25, 2018
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should you hold our for 90 times RMR
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Ken,
    40 multiple? Are you kidding? You’re living in the past. I wouldn’t sell for less than a 90 multiple. S Corp. taxes are now capped at 25%, and no taxes on a portion of your profits. Alarm companies are poised to take off in both explosive growth of new customers, and much higher monthly pricing.        Home automation is in it’s infancy and will grow exponentially over the next 10 years, adding millions of new customers annually. Additionally, the skilled labor shortage will cause wages to double over the next 10 years causing a doubling of current monthly monitoring charges. There has never been a better time to be in the Alarm business! If you sell now at a 40 multiple, you will be very sorry in the years to come.
  Thank you,
Greg Rice,
Young Alarm
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Response
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    I'm looking forward to representing you on that sale in the very near future, because I don't think I'll have a buyer client for that deal any time soon. 90 times is a bit ambitious; I don't think the numbers work. My gut impression is that if you pay 90 months it will take at least 120 months to break even, and that doesn't account for attrition. In 90 months you may have nearly 50 to 90% attrition.
    But let's be more realistic. I agree with your prognosis and economic forecast for the alarm industry. It's not in it's infancy, but it has tremendous growth potential. That potential, however, will not be achieved unless alarm company owners are as innovative and adaptive as the technology. 
    Growth is predictable because of security risks in general, more available and affordable products and services and mass marketing through social media and other outlets. 
    If you are limiting your advertising to newspaper print you may want to give it a second thought.
    If you are limiting your products and services you may want to give it a second thought.
    Think about it. Why are you doing only intrusion; only cameras; only fire; only hard wired; only wireless? Do you really need to be so specialized? Another way of asking that question is, do you really need to be so closed minded?
    Sure, your company may specialize in a particular form of security or fire. That model has served you well and you don't see any reason to rock the boat. But, continuing with that analogy, "steady as she goes" is not exactly an exciting plan for significant growth. 
    Do I have the answer? I think I can suggest the right direction. Study your industry. Read the industry magazines; attend association meetings; engage the right professionals; focus on growth, not maintaining the status quo. Take educated and calculated risk but don't be uncomfortable. 
    Business, including your business, is not likely to stagnate, at least not for long. It's going to grow or it's going to shrink.  You're working hard. You may as well get rich doing it.
    O yeah. I'd be remiss if I didn't suggest how you get started in the right direction. Update your contracts at www.alarmcontracts.com. Get the ones you don't think you need and start selling and providing those services. Then we can both get rich. 
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comment by employer of door knocker from July 23, 2018 article 
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Ken, 
    We appreciate your leadership in the alarm business and are daily consumers of your newsletter. Because of that, we couldn’t sit back and not respond to your analysis in your article on July 23, 2018. 
    Like many companies in our industry, Capital Connect has utilized door to door sales to generate new business. We put many safeguards in place to ensure that our representatives never utilize unethical, illegal or immoral sales tactics. Sometimes despite our best efforts, individual sales representative may act in way that we would never condone.  As with the case you mentioned, upon learning about what had happened the sales representative was immediately terminated. We had not had prior complaints about that sales representative and he had worked for one of the largest security companies in the business for 7 years prior to working for us. We had seen nothing in his behavior or behavior to give us pause. 
    We value our reputation and frankly were offended by the idea that we would teach these kind of tactics. Nothing could be further from the truth. This type of business hurts all of us in the end. We have been in business for over 10 years, have made a number of acquisitions of local alarm companies in our primary markets, have a robust commercial business and have a stellar online reputation. We would never throw that away for some ill-gotten door to door sales. 
Regards, 
Todd Johnson, CEO 
Capital Connect, Inc 
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Response 
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    I did make a number of assumptions, some apparently erroneous, but I really was commenting on many companies using door knockers as a growth model in general terms. I don't think using door knockers is wrong; in fact I think it's a proven effective sales program. Whether effective door knockers have to engage in and employ deceptive business practices to achieve results is not a question I have an answer for. Maybe companies with door knocker programs can enlighten us with their statistics. 
    Door knockers, like all employees, often move from one company to another. Therefore, it may be hard to know where the door knocker was trained and what culture was ingrained.     Of course, no matter how they are trained, the pressure to complete a sale is undoubtedly tremendous at all companies.     Turning a blind eye how some door knockers are outselling the others may be rule of thumb, but it would be unfair to ascribe that practice to all companies. Certainly Capital Connect did the right thing by terminating the offending employee upon learning of the deceptive practices, and I appreciate Todd's comments and happy to circulate his explanation. 
    Alarm companies that use deceptive business practices, and that includes many practices, not just door knockers, will cause law enforcement to focus attention on the alarm industry. Bad apples often pollute the barrel. 
Note: I just want to remind you that if you are getting two duplicate emails from me daily it's because I am using two bulk email service companies. The two companies seem to reach different addresses. Feel free to delete one email. If you want to unsubscribe you should do it from both emails. You can always read our emails on our website at https://www.kirschenbaumesq.com/page/alarm-articles
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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