Consider us your partner in success. Whether you’re looking to expand or downsize, our team is here to support you every step of the journey. Our team of industry experts can help you make connections to ensure your success. The following article, from Jim Wooster Jr. of Alarm Financial Services (AFS), offers critical insights to prepare your business for a sale. – Jonathan Sherrell, Director of Sales
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The team from Alarm Financial Services has been involved in hundreds of acquisitions over decades in the electronic security industry. As a buyer, seller, lender and advisor, we have seen all aspects and all angles of the process, most of the time with our own money at stake.
In contrast, for the owner of a security and life safety company, the sale of a business may occur only once in a career. There may be only one chance to get it right. So, purposeful preparation ahead of a company sale is essential to increase the value and ensure a smooth process. What, then, should a business owner focus on? AFS identifies seven actions you can take to maximize the value of your company and avoid the all-too-common misfortune of leaving money on the table.
Clean Up Customer Contracts
First, consult an industry attorney to make sure all contracts conform to industry standards. Clean up missing, ineligible, un-signed, and/or non-assignable contracts.
Address Accounts Receivable
Are you on top of collections efforts? Customer accounts that are significantly past due (over 90-days or maybe even 60-days late) will be thrown out of a deal. In some cases, we have seen poor record keeping and bookkeeping practices make the AR look even worse than it actually is.
Measure Attrition
For as important a measure as attrition is for recurring revenue companies, it is surprising how few alarm companies measure it each month. Don’t just analyze the rate of attrition, capture the reasons why customers cancel. You can’t manage what you don’t measure.
Get Familiar With Your Financial Statements & Key Metrics
We often see alarm company owners provide a narrative about how they run their business. Including what the customer base looks like and what kinds of products/services they sell. Many are unable to provide the numbers behind that story. Keep track of attrition rates, creation costs, ARPU, RMR, EBITDA, and COGS. Buyers want to see numbers.
Assemble Your Team
Key advisors include an alarm industry specific accountant, attorney, broker and especially a tax advisor/estate planner. Too often, sellers are not aware of the tax consequences of a company sale. They fail to do proper tax and estate planning, undermining the hard work that went into building a successful business.
Show Me The Money
One of the biggest laments from sellers is that buyers are only interested in their RMR (Recurring Monthly Revenue) and don’t consider non-recurring revenue in the purchase price calculation. This will happen unless the seller specifically documents where the buyer will earn profit when it acquires the business. You have a profitable access control division which doesn’t have a lot of RMR? Document those profits (or better yet turn the revenue into RMR).
Review Central Station Reports
Identify Late to Test accounts, runaways and trouble signals. Make sure contact lists are up to date and communication paths (cell, radio, receiver lines) are transferable.
Start Sooner Rather Than Later
Of course, there are many more actions alarm company owners can take to improve the value of their business, and the tasks may seem overwhelming in addition to the day-to-day demands of running a business. So, start with one task, but start now! Even if you are not ready to sell today, your company will realize greater efficiencies and profit in the meantime.
Jim Wooster, Jr is President of Alarm Financial Services, Inc. the industry’s oldest financing company. Founded in 1987, AFS offers a range of financing programs for small to medium-sized security alarm companies across the US. AFS assists companies in preparing for a sale through its Pre-Sale Due Diligence Services. To learn more about AFS, please visit: www.alarmfinancialservices.com.
