How To Future-Proof Your Alarm Business

business papers on desk

As a business owner, maybe you’ve heard the term future-proofing. Ever wonder what it means? Future-proofing involves creating a plan for dealing with the fact that the world of business is always changing. Whether it’s a gradual evolution or a revolutionary new technology that sets the market awhirl, savvy business owners need to be ready to adapt.

You can think of future-proofing as strategic, planned resilience. You know change will happen and that it won’t be something you can control. However, you CAN be ready. Here are some tips for future-proofing your organization.

Know What’s Happening in the Market

To stay profitable and ahead of your competition, you need to understand current trends – economic, political, regulatory, new technologies and products, competitive activity, and more. It’s better to be in the know, so you can be proactive in adjusting to trends.

Diversify Your Alarm Business

Variety is more than the spice of life, it’s the bedrock of a healthy business. Offering a range of services to a range of customers buffers your business from big market fluctuations.

Take a look at your customer mix.  It’s best to have a mix of both residential and commercial systems. Don’t try to be all things to all people. However, don’t focus exclusively on builder sales, for example, to the exclusion of other sources of revenue.

In terms of the services you offer, including a broad range like security, alarm, fire, integration, etc. 

Build A Team of Leaders

Whether you’re planning to sell the company someday, want to pass it on, or work until you drop, your company will do better with a leadership team in place, rather than you as the lone wolf calling all the shots. 

Buyers may consider this as an indicator that a company can do well after an acquisition.  After all, if the owner has all the customer relationships, holds the licenses, and manages all the operations, the company has a bleak future when the owner leaves. 

Keep Your Eye on Financials

As an owner, it’s part of your job to read and understand monthly financial reports, down to each and every line item. A major part of a buyer’s due diligence will be pouring over your financials. After all, they’re about to pay you for your company. They and their bank have to be comfortable that your company is in good financial shape.

Keep Accurate Records

You need accurate, up-to-date business records, including financial records, to make intelligent business decisions. For example, you’ll need accurate records if you have to review the performance of different parts of your business.

Keeping accurate records will help you with compliance, if you’re looking to sell your company, or are seeking financing.

Define Your Business Designation

Determining which legal business designation is best for you – S corporation, C corporation, limited liability company (LLC), or sole proprietorship – is a complex decision you should make with your attorney and accountant. All of these designations have tax ramifications, and your designation can affect your company’s attractiveness to potential buyers.

Be Mindful of Annual Attrition

Customers come and go. Right? But too many customers leaving in a year is a warning sign. If you’re a smaller alarm company, the average attrition rate in our industry is 6-7% per year. If you’re seeing higher rates of annual attrition, find out why accounts are leaving. Then fix the problem.  It’s far more costly to bring in new customers than it is to retain them, so it makes financial sense to try to keep the customers you have.

Also, a higher-than-average attrition rate is a warning flag for potential buyers since it can indicate an unstable customer base.

Contracts and Compliance

Make sure you have proper contracts for all your accounts. Contracts should define liability limitations for you and your alarm business in the event of loss of life and/or property. Plus, they’re your company’s primary value if you need to borrow money or decide to sell.

Proper insurance and licenses for each product and service you offer are also essential.

Build Your Company Around Recurring Monthly Revenue

System installations are great, but successful companies also focus energies on getting a  recurring monthly revenue (RMR) component with each install. Usually, this is a service contract. Service contracts stabilize revenue and add value to a company.  

Providing regular service also gives you openings for talking about new technologies and industry advances, opening the door for sales of new products and services.

Control Your Monitored Accounts

Many smaller alarm businesses can’t profitably operate their own central station. If this is you, you’re probably using a third-party central station. 

In this situation, make sure you own the phone lines so you control the accounts. Why?  Let’s say you want to move the accounts. Maybe the service is bad, or you’re selling your company, or you’ve found better pricing. If you need to move those accounts and you own the lines, moving is easy. Think of it this way, these accounts are the lifeblood of your alarm business so you need to control them.

 

Business ownership entails a lot of responsibilities. We encourage you to future-proof your alarm business so you’re ready to handle whatever the future brings.

Have questions about future-proofing your business? Give Rory Russell a call at 800-354-3863 or contact him online to get the conversation started today.