Even if you aren’t ready to sell your security alarm business today, you should start positioning your security alarm company now for a premium sale price in the future. We understand the characteristics and expectations required to realize the maximum selling price. Here are a few of the most basic things you can start doing right now to enhance your value:
Use Only Mainstream Panels and Equipment
Trendy and start-up manufacturers may seem like a great idea because they offer discounted prices. However, it may cost you at selling time when buyers are looking for security alarm companies that they can easily streamline into their existing businesses. If you’ve been using a little known supplier, now is the time to switch. As your old customers need upgrades, switch them to your newer mainstream equipment.
Keep Current Contracts
If you do not have customer contracts, it is time to get each and every one of your customers to sign one. This is the most basic and fundamental thing that you should have done BEFORE you put your security alarm business up for sale. Ultimately, the signed paper contract is the single most valuable asset within your security alarm company. In addition, your contracts should be updated and annually reviewed. You should have an attorney familiar with the security alarm business review and approve not just your existing contracts but any new changes that you want to make along the way. A buyer will need copies of differing contracts, and dates as to when each contract went into effect. If any changes to your contracts need to be made, do it on an annual basis. If your contract does not contain a specific “Limit of Liability” or “Evergreen” provision, it could dramatically affect the value of your company.
We can give you guidelines as to what buyers in our industry expect to see in your contracts. Please keep in mind, however, that we are brokers, and your final contract should always be approved by your attorney.
Understand What The “Evergreen Clause” is and Why it Affects the Value of Your Business
The Evergreen Clause is the legal term for provision that automatically renews your monitoring contract with your customers. Customarily, if you have a one year contract term, the Evergreen Clause will be woven into the language of your agreement and automatically renew it annually. Longer contract terms automatically renew proportionately. Without this important provision, buyers value each contract at a lesser amount and some will pass entirely.
Understand the Assignability Clause and Why it’s Important in the Selling of Your Business?
The Assignability Clause is the legal language that must be in your contract in order to properly transfer ownership of your signed contracts to the new buyer. Without this important provision, you will likely be required to obtain new contract from all of your customers which is both costly and time consuming.
A Designated Phone Line
Not having your own designated phone line for your accounts is more than just a burden to bear at closing time. It affects your bottom line! Many times we have seen buyers use this one point to talk a seller down. Unfortunately, it is a fair point. If a new buyer has to physically reprogram and transfer each of your accounts to a new phone line they may charge up to $250 per account for their time and labor. Taking care of this now will save you a huge headache in the future.
Diversify Your Account Base
Your sales staff may have an edge with the commercial market. However, security business buyers are looking for strong companies that have a healthy mix of both residential and commercial accounts. They are also looking for companies that provide burglar and fire systems. Don’t pigeonhole yourself into one area of the industry. Now is the time to train your sales staff to market all these areas of interest.
Strong Existing Sales
If your company has a strong sales history, that is a big indicator to a potential buyer that they could be the lucky benefactor of your success. As a rule, a prosperous security alarm company will generate almost twice as much in new sales and service as they do in monitoring revenue.
Get Your House In Order
Financially speaking that is. Buyers know they are getting a great company when the seller is producing and evaluating financial statements on a regular basis and keeping all records up to date. Staying on top of your receivables is also critically important because many buyers will not purchase accounts in arrears.
Don’t underestimate the monetary value of maintaining good service records and keeping them current. Your installation, service, and preventative maintenance departments should all be run with a solid history and profitability.
Finally, it’s also important that your systems comply with UL, NFPA, and trade custom standards accordingly. As well as keeping the base of your company in the same geographical area as much as logistically possible.