KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Comment on Fire Emergency Lighting inspections / sign up for free webinars
March 5, 2022
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Webinar Schedule: See below for details and Registration
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Webinars:
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March 8, 2022 Recruiting, hiring and retaining field talent
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March 9, 2022 Insurance Broker contribution to Due Diligence in acquisition transaction
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Comment on Fire Emergency Lighting inspections
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Ken,
On February 23, 2022, Megan asked a question about emergency fire light inspections. You were correct that it can be saleable, but inspection RMR is somewhat the wild-west right now and, while Buyers do purchase it, Sellers have some misconceptions about it.
First, it has to be RMR, which is Recurring Monthly Revenue. This means that it must be a recurring charge, and, monthly. For example, a $600 annual inspection billed one time, and after the inspection has been performed, is not recurring and not monthly, and very few, if any, Buyers will purchase it. That same inspection, billed $50 a month, would most likely be considered RMR and be purchased. It is also possible to bill the $50 per month on an annual basis ($600) and still have it considered RMR, but the way it is handled, is key. I would suggest having separate Agreements for inspections and monitoring. Your Inspection Agreements are a quick and reliable way to designate this revenue as RMR. “Inspection RMR” with no agreements (i.e. just invoices to the customers) is not RMR.
We see a lot of Sellers trying to re-write history by considering T&M, or uncontracted inspections as RMR. Get a well written inspection agreement from Ken that clearly defines what is being done (and what isn’t being done) and be sure to structure the services, and billing, as RMR.
Keep in mind that many Buyers (and their banks) require that inspection RMR be coupled with monitoring in order to be purchased. An alarm company owner should think long and hard before turning a screwdriver for a non-monitored customer.
A company should always have a written agreement for every service that they perform, even if the Agreement may not be marketable. Most lenders will only fund inspection RMR when the borrower also has a Monitoring Agreement with the customer, so stand-alone Inspection Agreements are less valuable. Multiples are generally less for Inspection Agreements because it may be hard to determine how profitable they are. Sellers should track the costs of inspections so that they can substantiate the margins.
Mitch Reitman
Reitman Consulting Group
Fort Worth, TX 76133
817-698-9999
http://www.reitman.us
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Response
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RMR, recurring monthly revenue, doesn’t necessarily need to be billed monthly. What’s important is that the service, and charges, are recurring and locked in for the term of the agreement. The Standard Form Agreements have a term for residential subscribers of 5 years and for commercial subscribers 10 years. The contracts also call for the monthly charge, say $50, even if the contract also states that it is billed annually in advance. No matter what the periodic billing the recurring revenue is calculated on a monthly basis for purposes of applying the RMR multiple.
Inspection service, required for commercial fire alarms and optional for security systems [other than some environmental systems in certain settings] is part of the Fire All in One and also part of the Commercial All in One and even the Residential All in One. It’s not a stand-alone contract and it doesn’t need to be. Alarm companies want to use a few contracts as they have to, and so do subscribers. You want to get the “after-install” services signed up at the same time as the sale-install part of the deal. Why? Because it’s the after-install services that add to your cash flow and equity in your business and it’s what you are going to be selling eventually.
If you’re still waiting and waiting to update your contracts, what are you waiting for?
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Webinar: Registration - sign up today
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Webinars
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Webinar Title: Recruiting, hiring and retaining field talent
When: March 8, 2022 12 PM ET
Topic Details: Even before the pandemic, hiring and retaining field talent in the security industry was growing increasingly difficult. This webinar will explore the best ways to find talent, prequalify them and develop enthusiasm to consider joining your team as well as how to quickly determine if a candidate’s psychomotor skills match their resume. Webinar will discuss skill matrixes and why they are valuable tools to incentivize and retain talent, help improve morale and promote consistent, transparent compensation.
Presenter: Peter Goldring, SET, NICET #143428 Fire Alarm Systems, Level IV, ACFE Certified Fraud Examiner. Peter M. Goldring Consulting LLC Phone 516-640-1410 peter@goldringprotection.com www.goldringprotection.com
Hosted by: Ken Kirschenbaum,Esq.,
Who should attend: Company owners, CEOs, CFOs, Manager, Human Resource Personnel
Register Here: https://register.gotowebinar.com/register/7491717510381999116
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Webinar Title: Insurance Broker contribution to Due Diligence in acquisition transaction
When: March 9, 2022 12 PM ET
Topic Details: Due Diligence to varying degree is essential in an acquisition transaction. Insurance considerations are best reviewed by an insurance expert.
Presenter: Shawn Iverson, CIC The Insurance Center, Ogden, UT 801-622-2626
Hosted by: Ken Kirschenbaum,Esq.,
Who should attend: Company owners, CEOs, CFOs, personnel involved in acquisitions
Register Here: https://attendee.gotowebinar.com/register/2096504113021511184
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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
www.KirschenbaumEsq.com
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