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Leveraging or financing your accounts
August 21, 2020
Leveraging or financing your accounts
            Your contracts for RMR services are a valuable asset, probably the most valuable asset you have in your business.  The contracts are worth more than your name, your phone number, domain name and website, your inventory, your good will and your equipment and vehicles.  But selling the contracts could be viewed as killing the goose; no more gold eggs.  There are a number of ways you can leverage your RMR contracts.  
            First let’s clear up by what I mean as RMR contracts.  These would be the parts of the All in One Agreements that call for on-going services over the term of the contract for which the subscriber is paying a periodic payment [monthly, quarter monthly, annually].  These services generally include monitoring, repair service plans, inspection service.  The on-going payments are called  RMR, recurring monthly revenue, even if pay semi-annually or some way other than monthly – you just re-calculate it for a monthly value, so $120 annually becomes $10 RMR.  If you don’t have a written contract with periodic payment, you don’t have RMR contracts [and you’re foolish].  
            So you build up your contracts and you build up your RMR.  You want to raise some money, but you’re not considering closing up shop.  What are your options to raise money using the contracts?
  *  you can sell some or all of the contracts.  This will raise the most money immediately, but, as mentioned above, it’s all you’re going to get.  If your operation depended on the cash flow provided by the RMR, well, you’re not going to get it
  *  you can borrow money and use the contracts for collateral.  The arrangement may be that you continue to collect the RMR and then pay the lender your loan payments, or the lender may take possession of the contracts and collect the money directly, retaining all or part of it and paying over to you the excess revenue each month.  
  *  when you use the contracts for collateral the arrangement is usually in one of several ways:  1) you post the contracts and they stay with the lender until you’ve paid off the loan; 2) you post the contracts and the lender holds each contract for a pre-set number of months and then gives you back the contract – at which time you keep the RMR.  Of course this assumes that you are current on your loan payments; if not, the lender will retain the contracts or sell them to satisfy the loan.  
  *  you can enter into leases with your subscribers instead of selling them the systems.  This is theoretically a way to “self-finance”.  In this scenario you are technically fronting the money for the installation and recouping it in the lease payments.  As a practical matter you may be getting enough for the installation to cover the cost of the installation.  
            In a way all RMR is a manner of financing because you could sign up the contract and immediately sell it; cash in on the contract rather than take the risk of getting paid for installation and after installation services, though in the real world you will have to guarantee payment to any lender who buys the contract from you.  
            There are a number of lenders that service the alarm industry; some are listed on The Alarm Exchange.  We should hear from them to see what they offer, how they calculate their loans and why alarm companies should consider them for financing.

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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