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Alarm Customers Not Making Timely Payments? Here’s How It Hurts You

Whether you’re up for sale or not, it is important to start shoring up your base of qualified accounts, says legal expert Ken Kirschenbaum.

Let’s discuss issues that concern buyers of alarm accounts that are matters you need to deal with now. If selling accounts is not something you are considering now, why think about these issues? What if you never plan to sell? Regardless, you need to keep your house in order.

Buyers of alarm accounts typically won’t buy any and all of your accounts. They may want you to turn all these accounts over at closing, but they won’t be paying for all of them.

The common term in the buy-sell agreements (the professional terminology is asset purchase agreement or sometimes stock purchase — or member interest — agreement) is qualified accounts or qualified RMR.

If a buyer is paying 35x-plus for your alarm contracts, the buyer has some confidence that the accounts are worth buying; they have value, and that value is measurable by the multiple the buyer is willing to pay.

Conversely, if a buyer isn’t willing to pay anything for an account, or less than the other accounts, it stands to reason that the buyer does not think those accounts are worth much, if anything.

In fact, these identified accounts are probably worth nothing and will only be a potential liability, unless they can be turned into accounts that measure up to the full value of the other accounts at 35x.

If you currently own the accounts (whether selling or not), you need to be asking yourself if those accounts are worth retaining, or are they a drain on your operation? At the very least, should you be doing something about these accounts now or should you just keep going on and wait until you are selling and the issue arises?

Qualified accounts and qualified RMR really mean the same thing. It’s what accounts the buyer will pay for. If you are at the point of discussing qualified accounts, it means the buyer has already expressed an interest in buying your accounts and has given you a good idea of what multiple the buyer is willing to pay.

But qualifying accounts means excluding those that the buyer doesn’t want. It’s a criteria set by the buyer; it doesn’t have to have any basis in good judgment or practice as it is the buyer’s sole prerogative.

Common issues that cause account rejection (which is the opposite of account qualifying) are no contract, poorly written contract, contracts executed when the seller didn’t have a license, accounts that are 90 or more days in arrears in payment, maybe accounts with high false alarm incidents or accounts well underpriced for the service provided. There are others, but you’ll have to call me to get those (for free of course).

The question you need to be asking yourself is, if the buyers don’t want these accounts, why do you? From an equity perspective, these accounts have less value and more risk. Yes, but even these accounts provide you with cash flow, which is better than nothing.

A good point, but if you can identify these accounts why not do something about them? Get a new contract signed, price the services properly, fix the false alarm problem, and compel the subscriber to bring the arrears within industry tolerable range, 60 to 90 days. For Pete’s sake, you invoice in advance of service.

How does a subscriber get behind 90 days after the service period is over? That means you billed in December for January — maybe through March, and it’s now June and the subscriber hasn’t paid that December invoice.

All you got between December and June were a few false alarms and a few nasty phone calls demanding something or other. Come on man, cut bait. Send the account to an agency like K&K for collection.

Running your business, having a subscriber base that doesn’t have proper contracts or working alarms and that don’t pay their bills timely is like making up fake bank accounts that you look at weekly to make yourself feel better and secure. It ain’t real, buddy.

When do you want to find this out, when you’re ready to sell, or now? You have time to fix this, and today’s a good time to start. Trust me, every company has accounts that need attention; get to it.

About the Author

Contact:

Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.

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