KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Using ratios to analyze health of your alarm business / More on AHJs understanding /Commercial contract questions
February 3, 2023
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Using ratios to analyze health of your alarm business
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Ken
          It’s the time of year when many folks, including our company, are reviewing mundane spreadsheets and accounting reports to see how we actually performed financially during the past year compared to the interim reports and our general feeling of how good or bad we think our finances may be. At least the spreadsheets and reports are mundane until it dawns on us we’re actually seeing the facts about how well we’re doing (or not). I know these reports are not contracts and directly in your arena, but they are an important aspect in the health of a business. Other business arenas that I’ve been associated with use various “ratios” comparing items such as material cost, vehicle expense, labor, etc. to gross or net income as indicators of strengths or weaknesses. The comparison was generally with prior performance of the same company as well as some industry averages. I suspect the ratios may vary widely within the security arena depending on the specific business model such as primarily residential, primarily commercial, and other areas of primary focus. However, I haven’t seen much of this type of information on your online forum and am curious about whether other folks use ratios in their reviews and whether they are used in business valuations.
          Thank you for all of the information and interest that you provide for the security industry.
Jim
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Response
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          In the February 1, 2023 article I suggested that you [and all security / fire companies] check out AIN Group.  I think the information you are asking about is something that the AIN Group would be helpful with and you should contact them.
          Using ratios as you suggest is, as you also mention, above my pay grade.  I’m sure there’s something better than intuition and guess work to help figure out profit margins and unprofitable areas in your business.  It’s one thing to know you’ve got a loss leader and another to not realize that certain aspects in your operation is draining the resources and funds from the overall operation.  Those of you still operating your own central station, monitoring less than 25,000 [and it could be the real number is 100,000] accounts will likely find that the central station side of the business is underperforming [to put it kindly] compared to other areas of the business. 
          Anyone have ideas for how using ratios will work and where do you get the info to work these ratios?
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More on AHJs understanding
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Ken
          I wonder how many ahj’s actually read and understand the testing and inspection forms?
My guess 0
Mike
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Response
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          All I can say is that the AHJs who participate on this forum are extremely knowledgeable and committed
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Commercial contract questions
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Ken
 Re: Commercial All-in-One contract.
          I have existing customers where we have already installed security systems that have recurring billing. I am working to get these existing customers on contract. What are the benefits to the customer for getting on this agreement? For new customers, we can make this agreement a requirement and/or factor into the price a 1-year vs. multi-year contract. For existing customers we can always require they sign or we will up the price, but I’d prefer some positive motivation in the form of a benefit along with that.
          We often have both monthly and annual billing for the same customer, depending on the product mix they are purchasing. I’d prefer to not have 2 contracts with the same customer. Can the All in One accommodate different billing for different services?
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Response
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          Existing customers who need to sign new updated contracts may in fact need some incentive.  Your threat to terminate service is one incentive [or opportunity to allow termination depending on the point of view].  You might offer a survey of the system, adding or updating a device; you may agree to hold the existing prices or decrease the price or give a credit.  You really do need to get the new contracts signed, so you should figure out what your customer requires.
          You may also decide to leave well enough alone and continue to provide alarm services without a contract or without a proper contract. You can continue to collect the revenue and continue to accept the risk.  In the long run that will prove to be a mistake.
  *  There might be a loss followed by a lawsuit
  *  Your central station or insurance company may wake up and throw you out
  *  You either won’t be able to sell these customers with no or old contracts when the time comes except for a significantly reduced multiple
          The All in One has line items for each of the after-install services.  You can price them separately and set the billing cycle for each.  You don’t need separate contracts just because you want to invoice monitoring monthly and repair service annually.
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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