KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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comments on positing your company for sale 
December 5, 2022
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comments on positing your company for sale from article on November 18, 2022
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Ken,
          Great post on positioning your company for sale in your November 18th 2022 email.  We run into many of the situations that you mention during due diligence.  Here are a few more items to consider, some even make sense if you aren’t selling:
  *  Make certain that you are doing business as the correct entity.  Sole proprietorships are just plain dumb.  The preferred form of entity for 99.9% of alarm companies is S Corporation.  If you aren’t an S Corporation ask why not.
  *  Find your central station agreement and read it.  I have lost count of how many companies decide to sell and can’t even find their agreement.  You may find that it is just about to renew for 60 months, or has crazy terminology (think First Right of Refusal), that can really hang up a sale.  Even if you don’t plan on selling, know the terms of your agreement and have Ken’s group take a look at it before it renews next time.  If you are a good customer the central doesn’t want to lose you and may be willing to make changes.
  *  Be licensed for everything that you monitor and in in every state where you monitor.  I don’t know of a state that will let you install or monitor a fire account without a fire license.  I have also lost count of the number of company owners who believed that they could hire a contractor who “worked for a fire alarm company” to install a fire alarm, that the company billed or and then monitored.  Even if you have a license, you need one in every state that you do business in, and this means monitoring as well.  This isn’t legal advice, I am just telling you that many buyers won’t buy accounts that you aren’t licensed to have.
  *  Track your attrition.  Companies that know their cancellation rates get better prices.  Companies who know why their customers cancel get the best prices.
  *  Replace your outdated radios.  Not much in life is certain, but a Buyer is certainly going to deduct the cost of replacing a radio, if they buy the account at all.
  *  Make sure that your accountant understands the tax implications of your sale.  I know that a lot of business owners enjoy paying taxes, but, for just once, think of your grandchildren and how nice it would be to use the tax savings on your sale to send them to Harvard.   Asset allocation in the Purchase Agreement is critical and takes an experienced tax professional; Ask yours if they know what IRS Form 8594 is.  If they don’t know immediately, run from them quickly.
  *  Make sure that there are no liens on your business before you put it on the market.  Do you know that vendors sometimes slip a Financing Statement through with your initial paper work.  These create liens.  I have spent hours running down someone at a company to release a lien that was placed on a Seller by a vendor that they purchased years ago.  So you were late with payroll taxes eight years ago and the IRS put a lien on your company.  Make sure that the Revenue Officer released it.  Do it now, not on the day before closing when you find out that they are on a two week vacation.
  *  Pay your payroll, sales, and income taxes and pay them on time.  A smart buyer is going to look at these, not just for liability issues, but to see how you run your company.
  *  Price increases are a great idea, but do it now, not right before the sale in an effort to get your RMR up.  Buyers know about this and there will probably be a prohibition against this in the purchase agreement.
  *  Clean up your receivables.  Now is a good time to move slow pays to credit cards and ACH.  Re-set expectations with your slow pays that you need to be paid promptly.  Resist the urge to just “issue credits” to get customers current.  Experienced due diligence teams (like us) will find this in an instant.  If you have any constant slow pays, like Governmental and large commercial accounts that pay late but pay consistently, summarize them and show that they pay a year’s worth of RMR every twelve months. 
          I have been working with Buyers and Sellers in the security industry for over 25 years.  Ken has been doing it since gas was 35 cents a gallon.  Don’t DIY the biggest financial event of your lifetime.  Call us, it’s not our first rodeo.
 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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          Excellent advice, as usual.  It looks like it’s probably too late to sell in 2022, so now you think you have a whole year to get ready ….   Get ready now; then you’ll always be ready, and you can look forward to the best price.
          I want to draw your attention to several opportunities that are available to buying alarm accounts.  I’ve recently decided to list these opportunities for available deals on The Alarm Exchange.  Look under the Merger and Acquisition category.  K&K is representing a bunch of sellers [broking the sale too]. 
          I’ve been signing up clients and broking the sale on what seems like a daily basis.  There’s a lot of activity.  You don’t want to wait until you “have to sell”; better to sale on your terms at your pace.  My “broker” agreement [which is part of the K&K retainer agreement to represent you in the transaction – and we don’t broker if we’re not the attorney on the deal] does not require exclusivity, is cancelable whenever you want and earns a broker fee only if you accept a buyer K&K brings to the table and you actually close.  The “commission’ is one month RMR, what I believe is about 1/3 of what the alarm brokers get.  In all fairness to the alarm brokers, I probably do less than 2/3s of the work they do; either I have someone interested or I don’t and I don’t do any other clean-up work or hand holding as broker; that’s reserved to legal representation for which there is a charge [separate from any broker fee].  One things for sure, you need a lawyer to do the deal, not always a broker, so don’t hesitate to engage K&K the minute you decide it’s time to get ready to sell.
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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