Re: Value of monitoring Contracts?

["R.H.Campbell" <rh.campbell@xxxxxxxxxxxxx>]

Balance of post added to original mis sent one.....sorry about that

RHC
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Well, since that sounds like an invitation to post, I will....))

Long term contracts are one part of the process of determining a company's
net worth for the purpose of selling or buying. RMR locked into a long term
contract does build a certain amount of equity in an alarmco's business, and
depending upon the
buyer, can be one of the more important things relating to the company's
value for resale. However, with buyers and banks becoming much more prudent
in
lending money to buyers based on the worth of the company, it is far from
that cut and dry anymore !!

Any buyer doing "due diligence" to assess the worth of the business will
look at FAR more than that. I'll summarize some of the more salient points
below:

1- The companies track record as far as losing customers (called "attrition
rate") is important. All companies lose clients through people moving, but
bad companies lose far more than their share. Companys that specialize in
the "free systems" also seem to lose far more than their share, perhaps
because of the "el cheapo" nature of many clients who shop this way, and
their overall average lower credit ratings

2- Buyers look for companies with the minimum number of types of panels in
service. A proliferation of different alarm panel types will increase
service costs for the buying company.

3- Buyers like all panels to be "uploadable" which saves service costs over
time.

4- The monthly rate you charge will have an affect on the ultimate purchase
price, since higher rates bring in more revenue.

5- The companies reputation in the marketplace is very important. Happy
clients stay with a company with or without long term contracts and this
loyalty CAN be transferable to the new buyer. However, much of that
"loyalty" can disappear depending upon how the buyer handles the first year
of ownership. If the buyer gets too greedy and tries to change things too
much, customers will leave (contract or not), and this loss will usually
reflect on a lower final payment price for the company. Most buyers try to
lever in a "holdback" clause, to ensure that any first year losses through
attrition or their
stupidity comes out of your pocket.

6- The state of organization of your alarm panel files is very important.
Buyers are looking for proper documentation, which shows them not only are
you diligent in keeping track of clients accounts, but also run an organized
business. This makes their job of integrating your accounts into their base
much easier.

7- Ideally, the more billing you have through automatic withdrawal, the
better for the buyer. This is easily transferred. Conventional 3 mo / 6mo /
12 month billing is one of the more expensive and time consuming parts of
running an alarmco.

There is more but that is what quickly comes to mind. Since the issue of
long term contracts can be a bit of a bugaboo, let me tell you of my own
experience. I set out with my business plan to position myself directly
between the large corporations and the "direct to end user" monitoring
rates. I also chose NOT to allow my customers to be trapped by long term
contracts; however, in return for more reasonably priced monitoring, the
systems I sell are ALWAYS charged at fair and full market value. And I don't
discount at the front end. So I make my money on day one, plus a fair
profit. Plus I ONLY do automatic billing, so my workload is minimal. If a
client wants anything other than Pre Authorized Payment Plan, then he
doesn't want me as his alarmco - period !!

Since this runs somewhat against the conventional wisdom of the industry, if
long term contracts were of such overriding concern to a buyer, then my
account base in theory should have little value. However, I have a standing
offer to sell my accounts at the equivalent value of a 36 month contract.

So its not always cut and dry ! Much depends upon things within the buyers
financial environment outside your control. But you can substantially
increase the worth of your business by running it in a thoroughly
professional fashion. How you do that, and what you charge must meet your
business requirements again based on what you want from the business and
where you are going with it. And that goes directly back to your business
plan. As we used to say in the Bell...."Plan your work, and work your plan".

I would suggest you do your own investigation of these accounts to determine
if it's worth your while. Tiny numbers of accounts seem to be harder to sell
simply because they are often not worth the business effort to do so. Large
companies seem to be looking for blocks of 500 accounts, with 1000 for sale
being the minimum needed to attract the "sharks" in the industry. But even
those numbers seem to vary at different times.

Good luck in your business!

R.H.Campbell
Home Security Metal Products
Ottawa, Ontario, Canada
www.homemetal.com



"Jim" <alarminex@xxxxxxx> wrote in message
news:1125374120.646605.13240@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
>
> James wrote:
>> If I am thinking correctly your saying it will take me 2.5 years to break
>> even?    Wouldnt you need a 5 year contract to make it worth your time?
>> He
>> only does 3 or 4 installs a year so it wouldnt break the bank.   But at
>> the
>> same time we wont gain much either...
>>
>> James
>>
>
> You can contact Bob Campbell in this group. He can tell you all about
> long term contracts and how it affects the worth of the accounts you
> are buying.
>