10 Ways to Future-Proof Your Business

Whether an owner intends to hold onto a security systems business long-term, pass it down through generations or sell it, a solid plan is critical to build the value necessary to accomplish those goals. Getting down and dirty to implement and execute today can have you smelling like a rose tomorrow.

Given the worldwide economic woes, safeguarding against whatever trials and tribulations the future holds for your business is a welcome concept. Future-proofing involves a strategic plan that ensures your business is positioned today to meet the challenges of tomorrow.

Future-proofing involves recognition that business environments are constantly changing, frequently due to external factors, and you need to implement the right strategies now to ensure your business will continue to thrive in the years ahead. While there are numerous strategies that can be employed to hedge against future challenges within the alarm industry, this article presents 10 critical components to help you future-proof your business.

1. Diversification

The stability of your business is strengthened as you diversify the types of customers and the types of services you offer. This does not mean you attempt to be all things to all people. It does mean you do not focus on builder sales (residential or commercial) to the exclusion of other sources of revenue.

Looking at your customer mix, in most cases a good split between residential and commercial systems will serve you well as the future unfolds.

Where it comes to service offerings, include a broad spectrum of the security industry (intrusion, fire, access, video, etc.). Doing so greatly enhances your opportunities for continued growth and profitability.

2. Accurate Bookkeeping

Keep good records and books. It is virtually impossible to make sensible management decisions if you don’t have the ability to accurately evaluate the profitability of the various sectors of your business. Proper accounting principles are the key to this.

The basic foundation for useable accounting information is the segregation of revenue by product and/or service with the segregation of expenses by product and/or service. This detail will provide you with the input you need to make decisions regarding expanding or reducing the various sectors of your business.

3. Mind Your Compliance

Proper contracts are critical to future-proofing your business. Not only do contracts provide critical limitation of liability to you and to your business in the event of loss of life and/or property where you have provided the alarm system, but they are the dominant value of your company in the event you need to borrow money or decide to sell.

In addition to mitigating the day-to-day risks of being in business in the security industry, proper insurance that is uninterrupted throughout the term of your business is necessary to maintaining top value for your company. At a bare minimum, you need these types: errors and omissions; general liability; vehicle; property; and workers comp.

Proper licenses for each of the product and service offerings you bring to market are also an absolute must.

4. RMR Mindset for Every Sale

Many companies are willing to accept just the profit from the installation of an access or video installation. Well-managed companies try to extract a recurring monthly revenue (RMR) component by offering service contracts on every sale. While service contracts are never as profitable as monitoring contracts (and consequently sell for a smaller multiple), they are a great stabilizer of company revenue. Rightfully so as they add substantial value to a company.

When the concepts of “predictable cost” and “technology refresh” are included in the sales presentation for products like access control and video surveillance, a high percentage of end users will opt for a service contract. The service contract positions the installing company to keep the competition out and create a new sale prior to the end of the contract. The copier industry has perfected this strategy. How many times have you ever gotten to the end of your copier contract before the vendor was there selling you new feature-benefits?

5. Build Up Your Infrastructure

While it may make you feel good to be the “decision maker” at every level in your company, it’s a risky approach. If your company needs you 24/7 to keep things organized, you don’t have many choices for an exit strategy or a succession plan. Build the team.

Many buyers look for an “absentee ownership” situation because it is a good indicator that the company can do as well after an acquisition as they did before even though the owner is no longer there. In contrast, a company whose owner has all of the customer relationships, holds all of the licenses, and manages all of the sales, operations and administration of the business does not have a bright future when the owner leaves. That is unless the new owner has a management team that can be brought to bear. Consequently, there are significantly fewer buyers for owner-dominated companies.

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