Legal Brief: Things you ought to know about your Alarm Business

Although you certainly don’t need to know every detail or know your financial information in precise detail, you should have a pretty good idea of it. It strikes me as odd when someone says, “I have to ask my accountant.” The funny thing is, most who say that probably don’t even have a regular accountant!

You should conduct your business — from start to finish — as if you’re planning to sell. You should be maximizing the equity in the business. In the alarm business, this is typically done by increasing your recurring monthly revenue (RMR).

RMR is derived by charging for your “after-install” services. Those services can (and often do) include monitoring, repair service plans and inspection plans.

Per-call service and per-call inspection may generate better cash flow when you look at a single account, but, overall, getting all or most of your subscribers into an RMR relationship, rather than per call, will generate the same or more revenue. And, of course, it’ll be more reliable and steadier.

I’ll give an example: You have a fire alarm inspection subscriber for whom you perform an annual (or semiannual, or quarterly) inspection, and you get $1,200 a year. It’s a per-call relationship for the inspection service. When you sell, that customer’s inspection contract will be excluded from the sale purchase price because it’s not contracted RMR.

Now, take the same account, but, this time, charge RMR of $100 per month. It’s a term contract with automatic renewal. That contract is worth $3,000 or more when you sell the accounts.

All security systems — cameras, audio, intrusion, fire, environmental, medical alert, PERS and access control — are still valued and sold based on the RMR model; that is, as a multiple of the RMR.

RMR is generally determined by calculating the gross amount billed to the subscriber and then deducting sales tax and third-party monitoring charges. Often, the central station basic charge is not deducted — it depends on your negotiations.

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