1.31.25 – SSI – Ken Kirschenbaum
-You can straighten out rather quickly by updating your company’s legal contracts before offering them for sale.
You’ve operated your business for one year or 50 and you decide that it’s time to sell. The problem is, you don’t use contracts or the form you use is so poorly written that you might as well not have a contract.
Reality hits when you seek a valuation of the accounts or start to get offers — or, worse yet, get no offers. You just can’t fathom why others in the industry don’t understand or appreciate the profit you make each year and how happy your customers are.
Won’t Throw Money Your Way
Here’s why others in the security industry don’t seem to appreciate the value of your operation and won’t be throwing money your way:
- They aren’t willing to take the risk of a loss and claim, which is infinitely increased without proper contract protection.
- They are concerned that their errors and omissions carrier will cancel or not renew the E&O policy or increase the premium significantly because of the added risk.
- They are concerned that their central station will refuse to monitor the accounts because of the added risk of liability.
- They are concerned with regulatory violations, including licensing, consumer regulations and laws (and, in the case of poorly written contracts, contracts that won’t be enforced).
- They are concerned that, as a buyer, they won’t be able to get funding for the deal from reputable lenders in the industry like Alarm Financial Services.
- They are concerned that they won’t get a favorable report from someone like Mitch Reitman, who is engaged to perform due diligence by the buyer, or by you as a seller, to help you optimize the company for sale.
All is Not Lost with Bad Contracts
All is not lost, however, no matter how long you’ve run your business while swimming upstream. You have options!
- You can straighten out rather quickly (obviously, the more accounts you have, the longer it’s going to take) by updating your contracts before offering them for sale. This may avoid the issue of accepting an offer to buy the accounts that is conditioned on you getting new contracts signed within a period of time, and then the buyer either rejecting any accounts not updated or getting them for a very low multiple.
- Even if you don’t have the inclination to update the accounts, or you don’t have the time, you will likely get an offer from someone (expressed as a multiple for the recurring monthly revenue, assuming you have RMR). However, expect it to be well below market level — perhaps in the teens, rather than in the 30s or 40s.
Keep in mind that the decision to sell might come about because of unexpected circumstances beyond your control. In such a case, you have little choice and little time to prepare — sometimes, no time to prepare. The time to think about this and do something about it is right now…today.
Prepare for the Inevitable
What follows are a few ideas to help you prepare for the inevitable:
- Join the K&K Concierge Program to get the best legal and brokering advice and save money.
- Engage K&K as your counsel to represent you in the sale or the purchase and have the most experienced legal team in the industry as your counsel, cutting through the B.S. quickly.
- Engage K&K to broker your company for sale. Save about half the customary broker fee with no long-term lock in or onerous broker terms, and get the widest exposure for your company available in the industry at no additional expense.