If you're considering selling your electronic security business in the future, now is the time to start preparing. By focusing on the right areas today, you can increase the likelihood of a successful transaction and minimize distractions as you continue to manage day-to-day operations. Here are some essential areas to concentrate on:
1. Contracts
Ensure that you have signed contracts in place with all customers. These contracts should be fully executed and include terms such as contract duration and renewal, scope of services provided, pricing and payment terms, liability limitations, and assignability. It's wise to have an industry attorney review your contracts to confirm they contain all necessary terms and conditions. Keep original copies accessible and convert these documents into electronic formats for easier buyer review. If you’ve acquired accounts, ensure they’re transferred to your standard contract. Additionally, create a spreadsheet detailing key information, including:
- Customer name
- Site address
- Services provided
- Recurring Monthly Revenue (RMR)
- Contract start date
- Contract term
- Billing address
- Billing cycle
Make sure to have any large vendor contracts readily available as well.
2. Financial Statements
Maintain accurate financial records on a monthly basis. Prospective buyers will likely want to see the last three years of financial statements as well as the trailing twelve-month (TTM) period. Financial statements include balance sheets, income statements, and statements of cash flow.
3. Customer Attrition
Track customer attrition monthly, documenting the reasons for any losses (e.g., residential move-outs, lost to competition, etc.). Understanding these trends can help demonstrate your business’s stability and customer loyalty.
4. Employee Details
Create a spreadsheet with details for each employe that includes:
- Name
- Title
- Job description
- Employment type (full-time/part-time)
- Exempt/non-exempt status
- Start date
- Salary
- Other compensation
- Benefits
5. Succession Planning
If you plan to retire or transition out of the business after the sale, begin developing a capable leader who can successfully manage the company in your absence.
6. Grow Recurring Monthly Revenue (RMR)
RMR is particularly attractive to buyers, as it represents more stable income compared to one-time installation or service revenue. In addition to monitoring agreements, pursue agreements for service, video monitoring, inspections, and more.
7. Additional Considerations
Ensure you own the phone lines associated with your business and alarm monitored accounts; this enhances value since the buyer won't need to reprogram them. Make sure that you have the freedom to transfer accounts to the buyer, as sometimes other parties (i.e., your central station) may have a first right of refusal. Also, make sure your contracts and receivables are free and clear of any liens after taking out loans for your business.
While the acquisition process can feel overwhelming, taking these incremental steps to prepare now will position you for success when the time comes to sell. If you’d like to discuss this further or begin to explore an acquisition with us, feel free to reach out!
Hello! My name is Ryan Dreliszak, and I am the Director of Mergers & Acquisitions for Vector Security. We have a long history of acquiring companies and accounts over the past 30 years. We are skilled at helping you manage the due diligence process for a smooth close and transition. Let’s talk if you have any questions or would like to further discuss your business with me!
