The day you start your business is the day you should plan your exit strategy. Draw up a contract th
When you began your alarm business, the last thing on your mind was leaving it. Flush with the excitement of a new venture and the opportunity of making money, retiring or selling the company seemed far in the distant future.
As the months and years have passed, taking time out of your busy schedule to make plans to retire or leave the business probably has seemed next to impossible. Dealing with everyday business situations has occupied most, if not all, of your time. Perhaps you’re not sure what you want to do, so you haven’t done anything.
Sound familiar? You’re not alone. Alan Pepper, a partner at the law firm of Mitchell, Silberberg & Knupp LLP in Los Angeles, Calif., is primarily a corporate transactional lawyer specializing in the alarm industry. He says, The dealers I’ve come across the ones who want to sell their business or somehow develop a strategy for having a cogent and systematic way of exiting their business haven’t done it. Most alarm companies, because of the pressures of running the company on a day-to-day basis, focus on that aspect and don’t spend the time and effort to plan on what ultimately happens to everybody exiting the company.”
Gene Ash of Garden State Alarm in New Jersey had no plans on retiring but arthritis set in.
Max Maulden, who owned Marshall Alarm Co. in Agoura Hills, Calif., recently sold his business when the pressure got to him and he basically got burnt out.
Other dealers have left their businesses because of increased competition and falling prices blamed on mass-marketers.
And some have been presented with offers and opportunities that they believed too good to pass up.
What is your plan? If you haven’t already got a plan, it’s important to the livelihood of you and your family and the continued success of your company to draw up a contract that covers your company if you should retire, die, become disabled, get divorced, etc. Today, it’s not too late.
Decide How Much You Want for Your Company
When Pepper is asked to help someone sell the business, the first thing he does is find out the owner’s desires and the basic parameters of the deal. Then he suggests what the buyer probably is going to want to look at.
Gerry Geller recently sold his company, Security Communications Inc. (SCI) in Bellerose, Queens, and now works as an independent agent buying alarm companies for bigger firms. He says, “The first question everyone asks is ‘What’s the multiple?’ Then they want to know how they will receive the money. Some options include receiving it all at one time or having it paid out over a period of time.”
Handle Partnerships With Extreme Caution
If your ultimate exit strategy is to leave the business to your partner, plan on how that will be accomplished, and detail the economics.
“When we talk about exit strategies among partners, we typically talk about a good shareholders or partnership agreement among the partners regardless of the nature of the entity. Whether it’s a corporation, a limited liability company or a partnership, the concepts still are the same,” says Pepper.
Agreements are necessary because, like some marriages, partnerships often fail.
Run Your Business Like You Are Selling It That Day
Pepper believes alarm dealers should ask themselves, “How should I run my business today so I can maximize its value when I leave?”
The best way is by maintaining your records and business in a fashion that protects that revenue and makes it easy to explain to a potential buyer what is contained in the revenue. Pepper suggests having good information on each customer and creating a database that answers questions that buyers have during due diligence. “It’s been our experience,” says Pepper, “if you can remove doubt from a buyer’s mind and answer his questions about your business in a forthright and supportable fashion, then your business is worth more.”
One thing is certain: You’ll leave your business someday and in some way. If you plan for it today, you’ll minimize the stress and maximize your company’s value at the same time. Because everyone’s situation is different, there is no right way. The only wrong way is not planning for it at all.
Richard Hahn serves the security industry as a marketing specialist for Richard Hahn & Associates in Olean, N.Y.
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