There is a lot of information to consume when it comes to selling your alarm accounts. In this article we address why you should sell your alarm accounts, how to get funding, evaluating your accounts and more.
This in-depth eGuide provides links throughout with additional resources on this topic. You can click on the bullet points in the table of contents to jump to that section.
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A large portion of this question depends on what stage you are in as an alarm dealer. Dealers who are just starting out might will most likely be selling their accounts to gain capital, while a dealer who has been in business for a number of years could be selling accounts simply to stay afloat. Some of the most common reasons to sell accounts are:
One of the most unique things in this industry – and also what makes this industry so attractive – is that you can still maintain revenue even though you are selling. Let’s say you want to gain capital to buy a new vehicle for your installer.. Your business holds 500 accounts. You can sell 100 of those accounts – you might even bundle together your least attractive accounts – to fund the new truck, but you can maintain revenue from your existing 400 accounts. This is beneficial because you can get rid of “bad” accounts, and maintain your core clientele. Essentially, you are receiving money in two ways: RMR and the sale.
As a seller, there are a number of options you have as a company to sell your accounts. Some common methods include:
One of the main purposes of dealer programs is to provide security companies with cash to continue their operations. Dealer programs can do a lot of good for a budding security company, but there are some inherent risks when choosing to sell accounts to a dealer program.
The biggest benefit of joining a dealer program is the immediate income. Instead of serving an account for years, simply selling the account and getting the profits upfront is the ultimate benefit. This can be especially beneficial for small companies who don’t have enough accounts to generate the cash flow for new equipment or other costs.
There are some things you should be aware of if you are considering selling your accounts to a dealer program. The first thing to consider is that most dealer programs require your accounts to stay in good standing for at least one year after they are sold. If one of those accounts expires for any reason, you will have to pay the full life of the contract in full. You can also make this cost up by signing a new account and essentially giving it to the dealer program for free. Often times these “chargebacks” have additional costs to losing a contract, so the cost could actually be greater than just the penalty of paying the life of the contract.
Attrition can become a real issue with signing on dealer programs. Almost all partnerships require the dealer to service the accounts for free for a year after the sale. So, in a scenario when you lose an account after the sale, but you pick up another account, you not only lose out on the RMR, but the cost of equipment, installation of the equipment, tech costs and commissions are all sunk. If that continues to happen, your costs can soon outweigh your income.
It’s important to remember that attrition can be completely out of your control. Accounts can be lost from death, job loss, moving, divorce and a number of different reasons. To think that you can avoid attrition is unwise.
In terms of contracts, most dealer program contracts run for three years. These contracts are airtight, so it becomes basically impossible to break a contact with a dealer program after the contracts are signed.
Security Equity Partners is a unique funding program that can customize advancement plans to help your company with contracts.
An experienced broker can help you sell your accounts in a number of different ways. Brokers can provide insight on the industry, negotiate the terms of the sale, and provide account valuations. Here are some ways that brokers can help with the sale of your accounts.
Evaluating Your Accounts
A broker can help determine the sale value of your accounts. RMR is one of the most important factors in determining the value of your accounts.
Finding Qualified Buyers
Brokers can help your company find a qualified buyer for your accounts. Brokers can help you find a buyer that will pay the most amount of money for your accounts.They also can provide buyers from outside of your sphere of influence – widening the pool of potential buyers, and making it easier for you to sell your accounts.
There are many things that can be negotiated during the sale of accounts. A broker can help you get better terms of sale, help with attrition and other negotiations.
The fees from broker to broker can vary, and keep in mind that all brokers fees are always negotiable. The typical fee range is anywhere from 3-6% of the sale. But keep in mind there are many variables to fees – how many accounts are being sold, passthrough costs, buyer’s terms, etc.
The Alarm Financial Services Inc. offers a number of services to get funding for your alarm accounts.
Just like you would go into a bank for a business loan, industry banks can loan you money based on the value of the contracts you hold. Much like a dealer program, you can bring your future revenue forward from the contracts.
Industry banks can offer competitive rates. It is also speedy process to get money because you don’t have to wait or look for a buyer because the bank is the one purchasing or loan against your accounts.
Defaulting on your payments can ruin your credit.
The edmonds Group is an example of a bank that can help your company sell contracts.
The most important piece to this puzzle is the recurring monthly revenue from your accounts. Alarm accounts sales are calculated by a multiple of the RMR. You’ll hear terms such as, 32 multiples or 12 multiples when talking about the value of an account. Essentially, what is being said is the buyer believes the contract will be good for so many months (multiplied by that account's RMR). So, if the RMR is $15, and the account is being sold for a multiple of 32: $15 x 32 = $480 is what the buyer believes is the value of the account. Now, if you have 100 accounts all at 32 multiples of $15, that’s $48,000. As you can see, the instant cash injection can really become valuable quickly.
Click To Learn More About Improving Your RMR:
Think of buying an account the same way as you would buying a house. If the house has problems with it, the value of the house goes down. The better condition the house is in, the more it is worth. The same goes for alarm contracts. The better a contract is, the more value it has to both the seller and buyer.
All security companies will have attrition. That’s simply a fact of this industry. Some of it you won’t be able to control: deaths, moving, etc. But some of the attrition you can prevent. To reduce attrition, you first need to understand where it comes from.
There are many dealers that have no idea what the attrition rate is on their accounts. Are you one of those dealers? It is within your best interest to discover what your attrition rate is. This provides a better understanding on the health of your accounts, and can provide you a roadmap of what is causing your attrition, and how to lower your attrition rate.
Passthrough costs are all of the additional costs of upkeep on an account. Understanding passthrough costs is crucial to determining the real value on an account. This could account for costs on equipment, service, etc. This deducts from the value of the account. After passthrough costs are accounted for, the multiple is taken from the net value of the account. For example, if the RMR on the account is $20, but the passthrough costs is $7, the multiple is applied to the leftover value (20 - 7 = $13). So, if the account is worth 32 multiples of the account: $13 x 32 = $416 instead of $640 ($20 x 32). Sometimes the buyer will have better pricing with your passthrough vendors and a broker can help keep you from being overcharged here.
Beyond passthrough costs, there are additional contract characteristics that can impact the value of an account negatively.
It happens more often than not – the value of your accounts makes you rethink the sale. If you find out the value is much less than you anticipated, you can work on raising the value of the contract before you sell. You can do this a few different ways:
This may be one of the most important things you can do to raise the value of your accounts.
Things such as an account moving to a new home, or the individuals on the account are getting a divorce is often perceived as a bad thing (and don’t get us wrong, divorce is horrible). But it could also be an opportunity to retain existing accounts and sign new accounts.
Many dealers lose accounts when the individual moves, but if the dealer has a retention plan set in place, they can potentially sell another account to the individual in their new home and sign a new account to the individual(s) who are moving into the old house with the existing system.
This sort of plan can turn an otherwise negative attrition attribute into a positive retention plan.
Improving your accounts value is not a swift and easy process.It will most likely take a couple of years before you can truly improve upon the value of your accounts. After a year or two of making improvements on your accounts, you can get your accounts reevaluated and get the value on the accounts that you were originally seeking.
Once the value of the accounts are determined and the buyer wants to proceed, the buyer will want verification of all records concerning the accounts. This is why it is so important to keep organized records of all your accounts. The buyer will want verification on:
It’s important to keep meticulous records of all forms of payment. This could be through a database, receipts etc. But it can’t be overstated that when the time comes to sell your accounts, having great records of your payments will save you the nightmare of tracking down payment records.
Keeping records of what accounts are still in service can help the buyer know the health of the accounts. If you don’t have any records of the service activity, the buyer will have no idea how stable the account is, and could potentially pull out of the deal.
Does the panel still communicate with the central station? When was the last time a test was run on the panel? These are the types of questions an activity record will answer, and these are important verifications for the buyer to have to know the health of the account.
The main takeaway is to keep good records of all of your financials and services. You will save yourself a massive headache in the long-run and keep the value up on your accounts when you are ready to sell. This game
The responsibility of keeping the value up on your accounts lies fully in your hands. Keeping good records of all of your accounts, as well as putting attrition recovery plans in action will keep you business and your accounts in good shape. It pays to be meticulous now. Your accounts could be your retirement.