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More on valuation of alarm accounts / Holiday sale over in 2 days
December 7, 2022
More on valuation of alarm accounts
          I am seeing a lot of comments about valuation of alarm companies and how “multiples” figure into the equation.  We many times value a company for owners that have no intention of selling but need to know the value of their company for a divorce, transfer to a trust, settling a lawsuit, etc...
          While there really aren’t laws for valuations, like there are for taxes, or fire installations, there are Professional Standards.  We follow the American Institute of Certified Public Accountants, Statements on Standards for Valuation Services (SSVS).  
The IRS also weighed in back in 1959 with a Revenue Ruling (Revenue Rulings are a clarification of the Tax Code) that states that Fair Market Value is...  The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. 
          Notice that the word would is used.  We aren’t necessarily selling the asset or business, just determining what it would sell for if it was sold.  As Ken pointed out in his response to a subscriber who believed that a company that is “moving in a forward direction” is worth more, future growth may or may not be a
factor as value is in the eye of the beholder, in this case a potential buyer. 
          I prepare 20 – 30 valuations a year and most are to support litigation...  two parties can’t agree on the price at which the company would change hands and they have called in valuation professionals.  Sometimes the professionals for each side are at odds and they want to use my valuation as a tie breaker.  This is where having intricate knowledge of the RMR industry comes in handy.  In most cases
both valuators have applied what is known as the Income Approach to the company as a whole and made a determination of value based upon the discounted value of future net income.  In many cases, the company has generated a reasonable salary for the owner(s), and some net income, giving the shareholder(s) $150,000 each of total compensation.  The two valuators have made adjustments for items such as the Cadillac Escalade , kids on the payroll, “business” lunches, etc... and have arrived at an
adjusted value, in the case above, perhaps $700,000.  But here’s the catch, the company has $40,000 of RMR and one of the parties knows that it can be stripped out of the company and sold for $1.5 million or so. 
          The valuators are at a loss and so is the Judge.  This is where industry knowledge is helpful.  We all know that a valuation of $1.5 million is reasonable for an alarm company with $40,000 but why?  Yes, it can be sold to the willing buyer above, but how, and, why would they pay so much for a company that two experts have valued in the $700,000 range?  The answer is that there is an asset, RMR, that can be effectively “stripped out” of the company and managed to create future income.   The buyer is counting on being able to add the RMR to its existing base, pay the direct costs, and enjoy the net cash flow until the last account cancels.  The buyer can be more profitable than the seller, because the buyer won’t have the overhead of maintaining the seller’s company.  This is referred to as the Steady State Method.  
One of the assumptions behind the Steady State Method is that the net cash flows from the RMR are greater than the net income from the company.  In the example above, the company has a whole generates around $150,000  per year of cash flow.   If it has $40,000 of RMR, this is $480,000 annual revenue, if monitoring, billing, non-chargeable service, and other direct costs are around 20%, this leaves $440,000 of net cash flow from monitoring.  Where did the difference of $290,000 per year go?  It went
to overhead... rent, insurance, bookkeeping, legal, accounting, etc...  
          A buyer determines the net present value of the $440,000 of cash flow (less annual attrition) at a specific rate of return and comes up with a value for the RMR.  The value is then expressed as a multiple.  This is how the large buyers determine value, and the “multiples” trickle down to the smaller buyers.  This is a starting point.  It is then adjusted by other factors such as quality of monitoring agreements, geography,
type of services, etc.. to come up with a market multiple.  We then add the net tangible assets (vehicles, inventory, equipment, etc...) to come up with a total asset value.  This typically gives us the highest value and greatly exceeds the value arrived at by using a net income multiplier.  Occasionally we will encounter a company that has net income in excess of the cash flow produced by its RMR.  In these cases we will either use a multiplier of net income or value the RMR first, then value the residual net income. 
          Owners who sell their company based upon the value of the RMR aren’t necessarily selling themselves short, they have a nice company, and that nice company has produced a high quality book of RMR and should be valued as such. 
Mitch Reitman
          Valuations depend on lots of factors, and not all objective.  In fact, subjective criteria probably influences the valuation more than any objective criteria.  Keep in mind we are not looking a single asset item, such as a car, which has at least some established published criteria.  Alarm accounts can be all over the place and worth different amounts depending on who is buying. 
          What do I mean?  Well is the buyer another alarm company looking to increase its footprint and RMR?  Is it a partner who wants to continue the business when the retiring partner leaves?  Are they the employees taking over the business? 
          For a straight up alarm account valuation go to Whats My Alarm Company Worth?  Choose the level of Valuation Report and get a quick analysis of the value of your alarm accounts.  Doesn’t get any simpler or cost efficient than this method of valuation.  Need something a lot more detailed and a lot more expensive, give Mitch a call, especially if you will need an expert witness for a court proceeding – he loves to travel.

Special Holiday Contract Sale on select contracts / 50% OFF / see details and save thousands
          The following Standard Form Agreements are on holiday sale through December 9, 2022.  Order any of these contract forms and we will discount the price by 50% off the published price*.  Concierge Clients will get an additional 10% off the discounted price. 
* The full list price will appear when you order but we will discount before processing the order; no need to call us
          These contracts are not discounted in the Annual Sale and have never been discounted before.  Total savings up to $3,822.50.  [another $382.50 for Concierge Clients]
          All of these Standard Form Agreements are up to date, will be customized with company name, address, phone and license, and delivered by end of this year by email.  All contract forms are found on K&K’s contract order page at

DIGITAL SIGN AND DISPLAY SALES, HOSTING AND SERVICE  list price $875 Your saving $437.50
          Includes installing of digital box and media player, hosting and administrative services and repair service.  Design creation also included.  This is for commercial customers. This is for digital signs and displays

HOME WATCH SERVICE   list price $995   Your saving $497.50
          Provide home watch service for vacant home; itemized list of inspection and service areas.  This is for residential consumers; customized state by state. Come with Rider for special instructions and additional services

VIRTUAL DOORMAN    list price $1,250   Your saving $625
          VIRTUAL DOORMAN STANDARD SUPERVISORY VIDEO, AUDIO, AND ACCESS CONTROL, SALES, MONITORING & SERVICE AGREEMENT.  Cameras with two-way audio for access control and "escort" service throughout a building or property under surveillance

          Tired of your customer using your estimate and information to put out a bid or negotiate with a competitor.  use this confidentiality agreement to protect your estimate and specifications

ANSWER SERVICE with questionnaire  list price $500   Your saving $250
          Standard Answering Service agreement with client questionnaire

COMPUTER CONSULTING list price $725  Your saving $362.50
          Consulting only; no repair service

COMPUTER CONSULTING, SALE, SERVICE, HOSTING  list price $875  Your saving $437.50
          Computer consulting sale, service, per call or service plan, website hosting

PBX SYSTEM AND HOSTED COMMERCIAL SERVICE  list price $875  Your saving $437.50
          Select sale or lease format. Select residential or commercial. Voip telephone system equipment sale and installation. Over-ride on VoIP hosted service and RMR for extended warranty and repair service. Generic form.  Call K&K Contract Administrator Eileen Wagda for selection of form: 516 747 6700 x 312

GPS MONITORING  list price $875   Your saving $437.50
          [single state only] vehicle or personal

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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