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Contracts – Adding Value to Your Business
Who likes paperwork? Nobody we know, but when it comes to buying or selling your business, the value you get is closely tied to your sales/monitoring contracts.
We are often surprised at how frequently we begin negotiations and due diligence with a company only to find out that the contracts which the owner was planning to sell are actually the central station agreements. Or the owner took a few parts of some different contracts, thought it looked and sounded good and made it his own, only to find out later that it did not include the necessary contents of an acceptable contract.
So rather than look at it all as a necessary evil, it’s well worth it to review your business’s paperwork as a place to uncover – and protect – what is often the single greatest asset in your business.
When you get ready to sell, you’ll need to be able to demonstrate the contractual RMR to the buyer. And to do that you need a good understanding of your contracts. If you are like most businesses, your procedures, customers, and documentation have probably changed over time as your business has grown. First, make sure that you are using an attorney-approved contract. Attempts to save some money now by “creating” your own contract will likely cost you both time and money later!
Periodically review all your customer contracts so you have a good understanding of the dates and length of each obligation. If your account software allows for this, make note of which contract version each customer is using.
You should be able to identify the following within your contracts as well as the required legal language:
- Assignability – Make sure you have the ability to transfer ownership of the contract with no constraints.
- Contract Term – including the renewal language should be very clear and easy to find and read in the document. Keep in mind state requirements that impact the terms, i.e., “Evergreen”, (automatic renewal) is not allowed in every state.
- Date – It is imperative that the date is clearly written on the contract (or the term really doesn’t matter!).
- Make sure the contract has a COMPLETE SITE ADDRESS! And if this changes, you need a new contract with the NEW COMPLETE SITE ADDRESS!
- RMR Amount – This may change over time but there needs to be an amount written on the contract reflecting the cost for services, which everyone agrees to.
- Clear Warranties – If you’re including a warranty, the terms of it need to be clear to the customer and a buyer needs to know what you’ve committed to providing.
- State regulations – Some states specify special regulations and your contracts need to accommodate and include them.
- Signatures – Your customer must sign the contract for it to be valid and an authorized employee of your company needs to sign as well if there is a place for it on your contract.
- If a subscriber’s name changes (marriage), you need to have an addendum to your contract identifying that name change.
- In the event of a divorce, plan to get a new contract signed with the person inhabiting the home.
- Consider what you allow to be crossed out or changed on your contract…some changes or deletions may deem a contract invalid!
If your contracts are missing, inconsistent, incomplete or are missing required language, you may need to have your customer sign a new contract to bring them up to date. Again, you should have an industry attorney periodically review any contracts that you have used to ensure they are acceptable!
Thinking of moving to electronic documents and signatures? As this practice has become more widely accepted in the industry, it’s a good time to do so. Many businesses have found the ability to easily search digital contracts makes customer support and added sales much simpler. And today, most buyers will accept electronic contracts and signatures from approved electronic document providers.
A scan of your signed agreements is also a great practice. This is not the same as an electronic file, however. Be sure to scan the front and back of each contract and save each of them in a properly named file for easy searching. If you scan your documents to save filing space, you may want to keep your originals in a safe place, preferably offsite. You may need them again when it’s time to sell.
Getting customer documents in order takes time, so this is not something you want to put off. You don’t want to wait until you’re in the due diligence phase with a buyer before you can confirm your contracts are properly written and saleable. A buyer will scrutinize every detail of your monitoring contracts to make sure they are buying something that will hold its value and provide the proper protection.
What are you doing to get your customer contracts in order? Send your biggest paperwork frustration to email@example.com and we’ll address it in a future article.
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