Traditionally alarm companies are valued based on periodic recurring revenue, referred to as Recurring Monthly Revenue, RMR.  Once that number is confirmed a formula is used to reach a value.  There are numerous variables to be considered, and financial experts, some business brokers and attorneys have the acumen to do the calculations with some degree of precision.  For the rest of us, much reliance is placed on gut feeling and general issues that are common enough to establish a method of valuation.  So for us commoners, let look at some considerations.  But before we do, let me stress that the single most important asset of your business, and one we focus on today, is your contract with your subscriber.  Because, when we talk about RMR we are really saying “RMR under contract”.  The contract you use will influence the multiple applied to the RMR.  How much?  Well I just completed a valuation [for your company valuation go to www,] and deducted 1 times RMR because the alarm company didn’t have Standard Form Contracts []  and 90% of the subscribers had contracts 10 to 15 years old.  I was going to deduct up to 5 times RMR but considered that the subscribers were long time customers and likely to remain so provided the transition to a new buyer was handled properly.   

          What else are we looking at besides the form of contract?  The subscriber base.  We are interested in the number of residential and commercial subscribers.  The type of subscriber needs to be considered because longevity is necessary to justify the multiple being paid.  A buyer shelling out 40 times the RMR will need at least 45 times to recoup the investment, and that’s on a monitoring contract;  a service contract carries more risk and may require more time.  It’s important to look at the type of subscriber, whether we are looking at mass marketing, low cost systems, or more selective type sales with high end subscribers.  Again what we are looking at is likelihood that subscriber will continue making the payments well beyond the multiple used to calculate the value.  Same goes with commercial subscribers and it’s not hard to see that a start up mom and pop operation is going to be a more risky subscriber than a real property owner installing a mandatory fire alarm system or environmental system.   
    What contracts and relationships the alarm company has with its vendors is another significant consideration, and perhaps number one in this category is the deal with the central station for monitoring accounts.  While valuation may not be affected if a potential buyer is in the same central, or it’s the central buying the accounts, if you lock your alarm company into a bad deal with the central that can affect your valuation.  A recent valuation I did was for an alarm company who did not have its own lines into the central station.  I deducted 5 times the RMR when doing the valuation.  Sure that can be corrected, but not without a lot of work, time and expense.  
    So where do the numbers generally fall for the “average” alarm company?  Close to 35 times for residential monitoring; 30 times for service.   For commercial fire monitoring 40 times is a good starting point, though the up side is limited; service is around 30 times.  If the alarm company under evaluation has an attrition rate outside the norm, and I think it’s between 3 to 8%, then it’s not “average” and adjustments have to be made.  An alarm company that uses equipment that no one else does is not “average”.  But if you’re operating within the classical model for the alarm industry your company valuation is going to fall within the 35 times range, give or take 5 times either way.  Keep in mind that’s a 10 point spread from low to high.  You know your RMR, so do the math and decide if you want to be on the high end.  If so, get with the program.

                                 Webinar Anouncement - no charge to attend

Title: Learn how to design sales presentations using tablets and computers.

When:  October 8, 2014  12 noon to 1 PM EST.  Sign in on your computer and dial in to participate.  Register here (space limited so register now):

Description:    This webinar will introduce you to sales techniques and tools using tablets and computers to do sales presentations.  Puffington will customize your sales tools utilizing our templates and proven sales presentations designed specifically for the alarm / security industry.

Presenter:  Luke Goetting;  312-620-0704  Puffingston is listed on The Alarm Exchange under Technology that increases or preserves your RMR.

Who should attend:   Alarm company owners and sales managers and sales personnel

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                                       Speaking Engagements
If you would like to schedule a free live video/webinar presentation for your association meeting or event contact Eileen Wagda at 516 747 6700 x 312.



Texas Burglar and Fire Alarm Association.  October 1 - 4, 2014,  annual convention at San Luis Resort Spa & Conference Center, Galveston, TX.  Register here:
For more info contact Debi at 281-859-4569.  Brad Shipp, Executive Director

Alabama Alarm Association.  AAA's Fall Meeting and Trade Show - October 21, 2014 from 3 to 5 PM at DoubleTree Hotel 808 South 20th Street Birmingham, AL 35205  for more info contact AAA Executive Director:  (205) 933-9000