DMG Business Article  

Business Planning as a "Best Practice"
“To do great important tasks, two things are necessary…a plan and not quite enough time.”

While it makes sense, sounds simple, and seems easy to implement, taking the time to plan for the future is often not a top priority during the busy day of the average business owner. However, successful alarm dealers, regardless of which markets they serve, their location, or size, tend to share a common characteristic - they work on implementing business planning techniques in all areas of their business. While developing a good business plan can be time consuming and challenging, the benefit of developing a systematic business planning process will make an alarm dealer’s company much more successful and valuable almost immediately.

Almost without exception, highly successful alarm companies develop annual business plans detailing the operational and financial aspects of their companies. Like a road map, well-written business plans help dealers determine (1) where they are, (2) where they want to go, and (3) how they will get there. When these plans are well-written, these plans keep dealers focused on their goals, their potential threats, and their likely rewards. Moreover, from our perspective as a major lender to the security alarm industry, we have seen in many cases that a good business plan is the crucial factor in convincing lenders and investors to provide the capital to allow dealers to realize their goals.

In addition to helping dealers secure capital for growth, there are other reasons to develop an annual business plan. First, a good plan saves the company money and time by focusing the owner’s activities, giving the owner more control over how scarce capital is spent. It can also help the owner develop as a manager. It forces the practice of thinking about competitive conditions, marketing opportunities, and other situations that can help or threaten the business. Finally, a good business plan can be a communications tool to familiarize sales personnel, vendors, and other key constituents with the company’s operational goals.

One of the most important ingredients in good business plan is realistic financial projections. These can only be developed from sound financial reporting systems employed by the alarm company. Financial reporting is the business world’s way of interpreting and evaluating businesses across a level playing field. If a dealer does not supply credible, current financial information in the native tongue of the financial markets - G.A.A.P. (i.e. Generally Accepted Accounting Practices) – then the maximum value will not be attributed to the company. Like the stock market, the financial market dislikes the unknown and will always assume the worst. If a dealer can not produce evidence of his company’s solid financial performance, lenders and investors must assume that it is shaky. Financial reporting gives one the ability to MANAGE a business, by comparing numbers to industry averages. Why does the competition seem to doing better than you are? Look at the numbers to find areas of improvement.

Good financial reporting starts with detailed, current monthly financial statements which include income statements, balance sheets, and statements of cash flow. Dealers should also have aging reports for both accounts receivable and accounts payable, and be able to discuss clearly the financial metrics of their business such as creation costs, cash flow, attrition, and gross and net margins. Dealers should factor in their current and projected attrition into all business planning. Lastly, believe the numbers! Don’t ignore the attrition calculations because of a “gut” instinct or feel. Dig into any differences that appear.

Business plans demonstrate the viability of a dealer’s business whether it’s a start-up or an established company. On a day-to-day basis, it’s easy to forget about the additional value created by running an alarm company based on good business planning. However, in the long run, any security alarm company competing in today’s challenging environment will ultimately benefit by instilling these practices now.