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History is laden with innumerable stories about painstaking gold miners who mistook bountiful shiny nuggets for the real thing, only to soon learn all their hard work had merely produced iron pyrite … fool’s gold.

All too often when in the market to sell their business, alarm company owners see great value in certain aspects of their operation. Frequently, however, what an owner promotes as valuable company attributes are ultimately exposed as having no value at all to the buyer.

Following are some of the more common examples that owners mistakenly believe to represent company worth. 

I do all of the selling myself. My customers like dealing with the boss and know they can always call me if they have a problem.

While it’s admirable to have great sales skills and to have a broad network of personal contacts, this scenario creates a major problem for the buyer, particularly if the seller is “out the door” after the sale. The buyer is faced with building a sales force. Even if the seller remains on staff, his customer service commitment precludes sales growth, simply because there is not adequate selling time available.

Further, the seller will not be honoring the basic principal of “highest and best use of his time.” An employee who costs the company $50 per hour should not be spending a large portion of their time dealing with business issues that should be handled by $12 per hour employees. 

Thanks to our great marketing efforts, we do business all over the state. 

The more compact the footprint of the subscriber base, the more valuable the business. If a significant percentage of the subscribers are more than an hour’s drive from the office, this can oftentimes be a strong negative to the buyer. 

More than a third of our business comes from the largest employer in our market. We get all their new facilities. 

Any time a single customer represents more than 15 percent of the revenue and/or profit of a business, this is a negative for the buyer. Losing a single customer representing a third of the business is extremely worrisome. (Ever hear the one about the alarm company that had all 150 stores of a grocery chain, and then the chain was acquired by another chain that had its own central station?) 

We don’t bill for most service calls. It’s more important for us to maintain the goodwill of the customer than to collect a small amount for service, which can help attract referrals. 

This is a major problem for the buyer. Most buyers have a substantial overhead structure in place to ensure they can provide professional service on a timely basis. When you have 10 or 50 service requests per day, having Johnny Serviceman catch it on his way home doesn’t work. Most companies figure their raw cost for putting a serviceperson on the street is about three times the hourly wage (including salary, benefits, training, vehicle, fuel, insurance, management, callbacks, facility, etc.).

Accordingly, a tech paid $20 per hour costs $60 per hour to be in the field. In order to make a 50-percent gross margin on service revenue with this cost structure, a $120-per-hour labor charge is necessary. A subscriber accustomed to “no charge” service is not likely to be pleased when billed at the service rates of the new owner, and even if the subscriber does not cancel at their first opportunity, they will require a lot of “handholding” to get through the transformation.

In summary, think about your company’s business practices from a buyer’s perspective. Implement whatever change is necessary to ensure that all of your fool’s gold has been minimized.

 

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