How to maximize the value of your RMR
As a security alarm company, your recurring monthly revenue (RMR)--the monthly fees stemming from your client base--is your most valuable asset. The value of your company, whether it is being determined for financing or other transactional purposes, is often based on a multiple of your RMR. Your ability to borrow against or sell your operation, in other words, your ability to realize the value of your business, depends on the depth and quality of data you have to support your RMR and results of operations.
Surprisingly, many security companies cannot quickly and effectively provide the data necessary to fully capitalize on their RMR.
The first step toward ensuring your company's ability to effectively leverage your RMR is simple: keep your data. All data related to RMR should be collected and archived at least monthly, preferably electronically.
Start with the customer contracts that document your customer relationships. Customer contract files should be well organized and secure to ensure that you have timely, accurate access to that data. Consider scanning documents to preserve them in digital form.
Next, security companies should maintain all customer data in a well-designed database. Ideally, this database will integrate billing, collections, customer service and other customer-related activities in a single, multifunctional program. Once any legacy data is loaded into this package and procedures for capturing new data are in place, almost all necessary data capture, manipulation and reporting tasks related to RMR can be readily performed, or even automated.
With a database program in place, security companies can take a fresh look at their ability to refine their analysis of their RMR data. For example, companies can start analyzing RMR data by year of origination. It's no secret that the more stable your customer base is, the more value your RMR will have with a lender or buyer. But do your current systems allow you to readily identify and document trends in customer turnover? Building the ability to track contracts by year of origination into your database will give you that capability.
You also can take a look at other RMR metrics. For example, how narrowly can you define RMR geographically? Maybe you want to compare territories covered by different sales or customer service teams. Maybe you face different competitors in different markets. The demographics of your customer base likely vary from one area to the next. By building the ability to tag data by these varying metrics into your system, you will significantly increase your ability to identify trends, both positive and negative, that affect the value of your RMR.
Another key step is ensuring that you can effectively and accurately tie your RMR to your general ledger. Sound accounting policies and procedures are vital at any time, but never more so than during a transaction. You will need to be able to quickly deliver monthly financial statements with sufficient detail to allow the lender or prospective buyer to analyze divisional performance, creation cost multiples and other relevant information.
Your ability to provide accurate data quickly will establish rapport and build trust, which are the foundations of a successful transaction. Remember, negotiations in any deal include not only price, but also other terms, representations, warranties and/or covenants. The faster you can provide accurate, documented data, particularly about your RMR, the stronger the relationship you will establish, and the smoother the transaction process.
RMR is the crown jewel of your enterprise. By taking steps now to ensure that you have the best possible information to support its value, you can position your company to seize important transactional opportunities going forward.
Michael Fox is a managing director at RSM McGladrey, Inc., and can be contacted at 312-634-4311 or firstname.lastname@example.org.