Security Sales & Integration February 2022 - 60

EXECUTIVE DECISIONS
Legal Briefi ng by Ken Kirschenbaum
What's Your
Alarm Business
Worth?
▶ WHAT YOUR ALARM BUSINESS is worth
is probably something you think about often.
If you don't, you should. Most businesses, the
alarm industry included, either grow or shrink.
Stagnation is not good for business.
How is this measured in the alarm industry?
Th ere could be several answers, diff erent ways to
measure growth.
In my opinion
the multiple
hasn't changed
the past many
years; it's still
35 times your
net RMR.
▶How much did the owners put in their
pocket this year compared to prior years?
▶ How many customers does the business have
paying recurring charges; more or less than
prior years?
▶ What's the net RMR for monitoring?
▶ What's the RMR for inspection, and what's
the cost of providing inspections?
▶ What's the RMR for service, and what's the
cost of providing service under RMR?
▶ How many new installations this year compared
to prior years and what is the profi t
margin?
A lot to think about, especially when you're
Ken Kirschenbaum, an
SSI Industry Hall of Famer,
has been a recognized
counsel to the alarm industry
for 45 years and is
principal of Kirschenbaum
& Kirschenbaum, P.C.
(kirschenbaumesq.com).
The opinions expressed in
this column are not necessarily
those of SSI, and not
intended as legal advice.
60
trying to get to sleep. Let me make it simple
and boil it down to just one calculation that's
not too hard to fi nd out or remember, so that
anytime you're asked you've got the numbers.
It's your recurring monthly revenue. You
should know your gross RMR and net RMR,
and once you know it you should break it
down for a few diff erent categories: residential;
commercial security; commercial fi re; leased
systems; monitoring RMR; service RMR; and
inspection RMR.
Most, not all, alarm businesses work with
the RMR model. Th ose that don't focus on
sale and installation and per call service, a
model favored by those selling cameras and access
control, though even those systems can be
folded into the RMR model. Subcontractors
working for other alarm companies don't typSecurity
Sales & Integration FEBRUARY 2022
ken@kirschenbaumesq.com
ically have RMR built up and their success is
measured by the monetary bottom line at the
end of the year.
Alarm companies that don't use the RMR
model can sell only one way, EBIDTA (earnings
before interest, taxes, depreciation, and amortization).
EBITDA is a measure of a company's
fi nancial performance and profi tability. High
EBITDA is better than lower EBITDA. Industries
vary widely in their fi nancial performance
and the best way to determine whether a company's
EBITDA is " good " is to compare its number
with that of other companies of similar size in the
same industry and area.
Again, most alarm companies use the RMR
model, and their valuation is based on the " going
multiple " for RMR alarm accounts. Th at multiple
can have a wide berth from low to high based
on many factors that potential buyers of alarm
accounts consider. I've addressed many of these
considerations in prior articles and they haven't
changed. What I really want to address here is
where today's multiples stand.
Once you know your RMR, what can you anticipate
in the way of off ers if you want to sell
your business? And what business are you selling?
You will fi nd that potential buyers are interested
in your alarm accounts that pay RMR. Th ey may
be willing to buy your vehicles and new inventory,
but that's about it. Don't expect a separate
number for your phone number or domain name
or website.
In my opinion the multiple hasn't changed the
past many years; it's still 35 times your net RMR.
Th at doesn't mean you're going to get that multiple
because you may have done more or less than
adhere to recommended best practices. If you've
done more then perhaps you will get a multiple
of 44 or more; if you've done less, perhaps you
will hear off ers of 18 or less. Th at's a big swing
in price because not all alarm owners run their
business the same way.
You should be careful to make sure you are
headed to the higher multiple, always. It's not if,
but when, you're going to sell and there's no reason
you shouldn't be prepared. Trying to change
your operation and your account base once
you're ready to sell is hard to do; improbable because
you won't have the time.
For an instant assessment of what your alarm
business is worth, go to kirschenbaumesq.com/
page/what-is-my-alarm-company-worth.
securitysales.com
http://www.kirschenbaumesq.com http://www.kirschenbaumesq.com/ http://www.securitysales.com
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