The 2020 first quarter edition of The Californian: The Quarterly Newsletter of CALSAGA is now available!

THE IMPORTANCE OF INCREASING COMMUNITY SECURITY

Mark Folmer, TrackTik, CALSAGA Network Partner

In the aftermath of a string of attacks targeting various communities around the United States, many state officials are calling for more protection. In New York state, for example, the governor has announced increased patrols by the state police in communities to counter what he calls “domestic terrorism.” Several state lawmakers across the United States have also asked the National Guard to visibly patrol and protect communities.

In Long Beach, California police will increase visibility and perform additional patrols and have asked the public to alert police if they see anything suspicious. Los Angeles officials have also modified how they respond to world conflicts and terrorist acts as tactics change. Post-9/11, authorities focused on protecting large-scale targets like high-rises, famous landmarks, and airports. They are now looking more at “soft targets” after several attacks targeting crowds of people celebrating in their communities and pedestrians have occurred. Security is also being beefed up at the Los Angeles port and LAX.

Community Involvement

But it’s not just physical security that officials are changing. Some communities are creating neighbourhood safety coalitions, or neighborhood watch programs, which will allow communities to work together to catch signs of crime and violence and report them before anything happens.

“If you see something, say something™?” which became the unofficial slogan of post-9/11 America, is a national campaign that raises public awareness of the indicators of terrorism and terrorism-related crime, as well as the importance of reporting suspicious activity to state and local law enforcement. In the wake of the recent communal attacks, public awareness matters now more than ever.

A few ways you can help keep your community safe: pay attention to your surroundings, get to know the neighbors, use timers on lights inside your home, install motion-sensors on lights outside your home, and never post your vacation dates on social media. As you spend time in and around the community, if you see something that doesn’t seem quite right, say something. By being alert and reporting suspicious activity to your local law enforcement or security officials, you can protect your family, your neighbors, and your community.

Public safety and security is everyone’s responsibility though. If you see suspicious activity, report it to local law enforcement or a person of authority:

• Who did you see?
• What did you see?
• When did you see it?
• Where did it occur?
• Why is it suspicious?

The Role of Security Companies

Security companies can also play an integral role in keeping your community and property secure and safe. Many security companies, often working in collaboration with local police, offer home protection programs designed to deter and respond to criminal activity, safeguard homes and properties, and encourage residents to collectively protect their communities.

When hiring a security company, here are a few qualities that you should look for:

Reputable Industry Provider

It’s important to find a reputable and trustworthy service, regardless of the size of the company. Look for a security company that provides excellent customer service, has a solid reputation with positive reviews, and values client feedback. A quick Google search could reveal a company’s reputation through Linkedin and Facebook reviews.

Trained and Certified Guards

Ask your prospective security company about the qualifications of their staff. It’s important that the security company provides guards that are well-trained and vigilant. Extensive training and discipline can set a top security guard apart from the rest. Be sure to check for certificates and licenses to know how much training the security guard has. If the guards are authorized to carry firearms, additional qualifications and carry permits may be required. Trained security guards know how to respond to crime and how to address any criminal activity like theft or vandalism.

Innovative Technology

Is the company up-to-date with the latest innovations in security technology? Most security companies promise that their guards are always on-time, stay alert, and respond appropriately when an incident occurs. But that promise should be backed up by what should be standard in the security industry–a security solution that verifies check-in/check-out, documents patrols and duties, . You should make sure the company has the ability to track guard activity with GPS tracking which provides a dynamic, real-time map of the location of guards at all times.

Summary

With police departments under increasing pressure to protect communities, despite reduced budgets and staff, many security organizations believe that the future of community security lies in improved public-private partnerships. Right now, police departments around the country spend more time dealing with noise complaints and rescuing cats from trees than solving crimes and enforcing law. So it just makes good sense to use private security officers to support state, county, and municipal policies agencies where they can make an impact on the safety and security of our communities.

Securing our communities shouldn’t be the sole responsibility of any one organization though. It should be a partnership between the citizens of the community working together with police agencies and security companies. Protecting our communities is not just about preventing crime. It’s also for the well-being of all the families in the community thanks to private security’s contribution to safety.

Mark was named to the prestigious IFSEC Global influencers list in 2018 & 2019 for “Security Thought Leadership”. He is also a highly active international security figure, member of ASIS and a Fellow of the UK Security Institute, as well as a world renown data-driven Operations & Security leadership expert. Mark is based in Montreal, Canada with TrackTiK, a dynamic and cutting edge tech company. Mark is also a lecturer and commentator on global security issues.

DO YOUR FINANCIALS PROVE YOUR COMPANY’S WORTH IN A SALE TRANSACTION?

Robert Perry, Robert H. Perry & Associates, Incorporated

There have been several very large manned guarding companies sold to Private Equity Groups (PEG’s) over the past few years at multiples between 9 – 12 times the seller’s earnings before interest, taxes, depreciation and amortization (EBITDA), with nominal adjustments.

But the smaller companies, making up the majority of the roughly 8,000 companies in the US manned guarding market are not valued on the seller’s EBITDA when being sold to one of the seller’s larger competitors – usually the most generous of the buyers in the marketplace. 

The acquisition of these smaller companies are a good source of growth for the larger PEG owned companies; in fact, the investors are demanding a series of acquisitions as a way to add shareholder value.  Collectively, the very few PEG’s that have invested in the contract security industry over the past 10 years have bought over 200 privately held companies; providing the sellers the opportunity to retire and receive a well-earned reward for their many years of hard work.   When these large PEG’s grow through acquisitions of smaller companies, they  pay a multiple of their (the buyer’s) pro forma profit; which is usually much higher than what the seller was making before the acquisition since the buyer, in building the pro forma acquisition model, will consider the elimination of redundant costs of the combined companies after the sale.

The problem for many of these “would-be” sellers is that their companies do not have the financial systems in place to help the buyer in preparing a credible pro forma profit computation and the expenses that can be eliminated through combining the companies.  These owners view the financial system only as a mechanism to file the year end taxes and not as an operating tool and especially not from the viewpoint of proving the real worth of the company when the time comes to sell.

We’re not necessarily talking about the owner needing audited year-end statements – although an audit certainly adds to the credibility of the financials.  We’re talking about the owners having a series of ancillary reports and financials that correctly present the financial position of the company, which requires the proper recording of revenue and expenses.   These financials will go much further than just reporting the net profits of the company; they will prove the real worth of the company by showing the specific elements of revenue and cost; important to the buyer  in evaluating the merits of the acquisition.  Sellers not being properly represented in the process, or trying to sell the company without any representation, usually don’t know how to present the financials; thus will sell the company for much less than it’s really worth.  The company may have a very attractive gross profit, but it’s up to the seller to prove it; and proving it involves a lot more than just handing the buyer billing invoices and payroll registers for a couple of periods.  The proof lies in the underlying financials that will confirm that the profit will remain at a certain sustainable level over time.

This is where we come in ….. our many years of managing transactions for seller/clients have enabled us to know exactly what the buyers are looking for and how to best present the financial information in order for our clients to receive top dollar in a sale transaction.  This is how many of our seller/clients have received very attractive prices for companies that, based on historical financials, have been losing money or have been only marginally profitable.

We’ll guide the seller in presenting a meaningful gross profit line – a very important aspect of proving the worth of the company.

Although the operating expenses of the acquisition targets are scrutinized closely by the buyers, it’s the gross profit line that primarily drives the valuation.  The buyer can improve on the general operating expenses through eliminating redundant costs after the acquisition, but there’s not much the buyer can do to improve on the profit at the customer site level.  It can’t raise billing rates, and it can’t reduce the security officer pay and benefits without jeopardizing the relationship with the customers.

Sellers, in presenting the gross profit, should make sure all direct cost ( and only  the direct cost ) relating to providing service to the customer is included in the gross profit section of the income statement, which will include:  gross billing, all compensation to the site security officers (billable and non-billable), and other relates costs such as – payroll taxes, general and workers compensation insurance, uniforms, equipment furnished at the site, union dues, site supplies, hiring and employee processing expenses.   If there are a lot of “cold start” accounts, the cost for some or all of the roving non-billable supervisors should also be included in the computation of gross profit.

We’ll advise on other financial statement adjustments and reports that are summarized and used to prove the worth of the company and become a part of the presentation to the buyer prospect:

• Customer Profit Report – This report will show every customer, by site, with the hours worked, gross billing, gross payroll, and any special costs that apply to the customer; such as dedicated site vehicles, special insurance, etc.  A more advanced report will further show the billable and non-billable hours (vacation, holidays, training, etc.) with the associated billing and pay, as well as the overtime premium for both payroll and billings.  Very important note:  this initial information is used to prepare summary “gross profit statistics” only, and is not shown in detail for the presentation to the buyer prospects.
• Year-end and Interim Statements – Prepared on the accrual basis.  Year-end financials prepared by an outside independent accounting firm adds credibility to the information.  It’s also good to have interim statements, although not as important that the interim statements be prepared by the outside accounting firm.  In order to help the buyer understand the financial picture, the statements should follow these guidelines:
  • Sources of revenue and related costs should be identified to help a buyer verify the profit at the sites level, the statements will also identify the revenue according to source (i.e.; permanent accounts separate from temporary accounts, regular straight-time billing separate from overtime premium billing, and patrol and any other non-guarding service would also be a separate line item).  The labor and other costs for the various sources of revenue will also be separated so the buyer can readily determine the profit by category of service (i.e.; how much it’s making on the permanent work vs. the temporary work, and how much its making on the patrol service, etc.).
  • Proper cut-off of billing and expenses:  A common mistake many companies make is not having a proper cut-off of billing and expenses.  This especially true where a company has several billing periods available for the clients (i.e.; some on weekly, others on semi-monthly or monthly, etc.) that do not match the payroll period.  When this is the case, the company should have a procedure in place to book the revenue that has been performed, but not billed, in order to get the billing in the same period as the recording of the labor for the respective service.
  • Another common mistake is not properly recording advanced billings.  This is more common for patrol customers than for guard customers, but in either case, if the invoice has been prepared and entered in the financial system before the service is actually rendered, the billing should be booked as advanced billings then recognized when the service is actually performed.
  • Expenses below the gross profit line should be detailed since the buyer will be scrutinizing these costs.  The buyer is looking for possible other costs that may be important to running the site, but may have been left out of the site level profit computation.
  • • • Insurance – insurance expense should be separated to show the amounts for workers compensation, general liability, employee hospitalization and health, etc.
      • Class of Compensation – compensation should be separated to show the amounts for non-billable roving supervisors, executives, clerical personnel, dispatch personnel and any other class of labor.  The more detail, the better it will help the buyer understand what it takes to run the business.
      • Vehicle Cost – to the extent it can be easily identified, vehicle cost should be separated by roving supervisors and executives.

For over 25 years we have successfully completed over 250 sell-side engagements for security companies located in 8 countries and having revenues between $2M – $200M.

The information in this article does not render legal, accounting or tax advice. Neither Robert H. Perry & Associates, Incorporated nor its employee, offer such services, and accordingly assume no liability whatsoever in connection with the use of the information contained herein. If legal, accounting, or tax advice is required, the services of a competent professional should be obtained.

© All rights reserved.  May not be reproduced without permission.