The Big Idea with Ron Davis
Mind the 'Basics' on Your Way to Building Profits
Idea of the Month
If you had just one really great idea you could share with the alarm industry, what would it be?
This month's great idea comes from Tim Thompson, a certified public accountant with Catalyst Consulting Group LLC, of Green Bay, Wis.
Thompson's Great Idea: The basis for success comprises multiple facets that focus on contracting of service agreements, building RMR, maintaining financial records and debt control.
You may have read recently about Davis Mergers and Acquisitions Group helping Tom Binish sell his company, A&A Security and Fire in Green Bay, Wis., to Iowa-based security and technology integrator CEC.
It was a successful transaction, given all parties involved walked away feeling as though they had obtained what they wanted. Merging the two companies is going to enhance the technical and financial strength of each operation and allow for expanded product and service offerings to their respective customers.
However, this article is not about that transaction specifically, but rather I want to focus in on the "financial guy" I met during the negotiation process.
Financial people in our industry don't normally get a lot of attention, but here's someone who does: Tim Thompson, a CPA with Catalyst Consulting Group LLC in Green Bay. Thompson helped Binish accomplish many of the goals that were established for A&A Security and Fire. When I asked Thompson the signature question, "If You Had Just One Idea ... " he immediately gave me what turned out to be a five-part response.
Without really spending a great deal of time thinking it through, here's what Thompson provided to me:
- Focus on contracting all of your service agreements.
- Bolster your recurring monthly revenue (RMR) stream as much as possible.
- Maintain your financial records as though you were going to sell your company, tomorrow.
- Keep the details of your financials up to date.
- Control your debt.
As I looked at my notes from the interview, I recognized that Thompson had captured the essence of running a business in the alarm industry, predictably and profitably.
Obviously, this month's column is being written for owners of alarm companies, but really it can apply to anyone in management of an alarm business.
In many of the transactions in which we're involved, money is literally left on the table because service agreements are not contracted. By and large, they are billed as time and material. That ties in with Thompson's second point - bolster your RMR stream. And once that's done, maintain your financial records. Not just as though you were going to sell your company tomorrow, but rather, as though you were always going to be audited and were ready for just that occasion.
Of course, the rest of Thompson's great idea has to do with keeping the details (or rather, the financials) up to date.
The last part of his great idea about controlling your debt is a sleeper. It is easy for any company to borrow its way into serious trouble. It's not always so easy getting out of trouble.
Every time you go to borrow, ask yourself these key questions: "Is this going to help me over the long term? Is there another way I can do this? Or, is there any other option to move the company forward?"
Every company needs a Tim Thompson, if only for a few hours per week on a consulting basis. By the way, that's the middle name of Thompson's company, and it seems appropriate.
Success in this business is predictable, so long as we take care of the basics!
Ron Davis is Security Sales & Integration's "What's the Big Idea?" columnist and contributing market analyst. He is president of Davis Group, a full-service consulting firm serving the security industry, which also includes GraybeardsRus. He has 35 years of industry experience, including founding Security Associates International in the 1980s.