business plan security co

8/3/2019 Business Plan Security Co

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Business Plan Security Service Company

Contact Information:

18293 Sunset CircleOcean Beach, CA 92113

(619) [email protected]

This document contains confidential information. It is disclosed to you for informationalpurposes only. Its contents shall remain the property of Business Plan Security ServiceCompany and shall be returned to Business Plan Security Service Company when requested.

This is a business plan and does not imply an offering of securities.


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Table of Contents

1. Executive Summary 1

Business Opportunity

Product/Service Description2. Company Background 3

Business DescriptionCompany History

3. Business Plan Security Service Company 5

4. Services 6

5. The Industry, Competition, and Market 7

Market DefinitionPrimary CompetitorsCustomer Profile

6. Marketing Plan 10

7. Financial Plan 11

Investment PlanBreak-even AnalysisLiquidity PlanEarnings Plan

Risk Analysis

8. Conclusion 19


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Business Plan Security Service Company 1

1. Executive SummaryThe service industry is a growing business segment. The current growth rates show that thereis a strong demand for companies that provide all kinds of business services. Especially,security and business services show high growth rates. Compared to other business activities,the service business has low risks because of low required investments in the start-up phase.

New forms of cost cutting and optimization will help to set up a successful business. Therevenues of this business have a growth rate of about 15% to 17% per year. A company thatprovides service activities for the customers can be sure to have a high demand and a strongcompetitive advantage.

The goal of this start-up is the general operation of a security service company. New forms ofmarketing and distribution will increase sales revenues and utilize personnel capacity.

1.1 Business Opportunity

The security service industry currently shows a strong growth marked by a higher

demand, but also growing costs. The development of new business strategies andsolutions seems critical for new industry players to get market shares and survive in thishighly competitive industry. The choice of services, as well as the development of newproducts, can be one strategy in this field of business. Additionally, sound costmanagement is of critical importance for a solid stream of revenues. Big industry playershave shown that even in a competitive market, growth rates of more than 10% can besustained.

The operation of a security service company that offers a range of security services, aswell as security equipment is the core of this start-up. A strong focus of this business willbe placed on the development of new and innovative strategies for the customers that

deliver a significant value. As an add-on, a broad range of customized company serviceswill be offered, which will help utilize company and employee capacity. The range ofproducts is selected to provide solid growth potentials. This can lead to a fast change ofitems and services or whole item groups, as well as services.

The operation of this business requires a good knowledge of the required securityproducts to develop a competitive service concept to increase customer satisfaction. Thedemand to explain the handling of special products for the customers is likely to require ahigh degree of individual customer advice. However, it is critical that this service isoffered with a strong focus on cost management.

One central goal of the proposed business strategy is the development of a uniquecorporate identity. Such identity will create customer loyalty and help gain a competitiveadvantage. Therefore, it is planned that, in addition to the selection of new and interestingservices, a company design is developed. For this reason, the service around the offeredapplications and the additional businesses is very extensive.

The required investment for the proposed business is moderate compared to other


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companies in the industry. Employment costs are expected to be the main fixed costdriver, whereas no other substantial investment in fixed assets is required. Dependingupon the location, the minimum required investment amount ranges between $25,000 and$30,000 in the start-up phase, based on a 12-15% average revenue margin. This amountis well within the financial requirements observed for other comparable companies.

1.2 Product/Service Description

The business will operate in the security service industry with a variety of businessservices and security equipment sales. An additional source of revenues is the sale ofcustomized service offers. This will cover the development of security systems. Crossselling is planned to be one of the prime strategies in this business, since all products aretargeted to serve a similar need and can easily be combined. Synergy in selling productacross business segments is likely to boost earning further. Net earnings are expected tobe at least 3% above traditional service businesses with only one or two sales segments.

Figure 1.1 shows the revenue mix across segments in the start-up phase. This projection

is based on the expected strategic direction, investment amount and businessenvironment. As the core business, the security service for business customers andindividuals is expected to generate the largest share in revenues. The sale of securityequipment is expected to be another important generator of revenues, which also helpsutilize invested capacity. The sale of customized services for companies is expected to beintensified, depending upon market conditions.


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2. Company Background

The goal of this start-up is the operation of a security service company with different servicesand equipment sales. The focus of this business will be on the service segment for privatecustomers which shows the highest profits. Additionally, the sale of individual securityservices for companies is planned to reach an optimal utilization of personnel and companycapacity.

An initial investment amount of at least $25,000 to $30,000 is required, which will allow theoperation of a business with 1 to 2 employees. Sales revenues are expected to range between$100,000 and $200,000 in the start-up phase and the operation is expected to generate profitsstarting in the second or third business year.

2.1 Business Description

Management is expected to have a solid knowledge of the offered services to influencethe customers. The goal is to create an innovative business in which the customerexperiences competent service. A well chosen and targeted selection of offerings willcomplement this strategy. Both aspects are core requirements to build customer loyalty.Repeat customers are expected to generate revenues of 40% and more. Although thisstrategy is likely to require additional investments, it is expected that revenues percustomer will increase significantly and range above industry average. Furthermore, thisstrategy will provide a clear entrance barrier for prospective competitors.

The development and promotion of a corporate identity is another central task formanagement. Given the homogeneity of businesses in this industry, the development of acorporate identity will markedly increase sales revenues and build a customer base.Furthermore, a corporate identity will support expanding the business to a largerinternational target market.

2.2 Company History

In the start-up phase, the business is operated as a one- person-business. This set upcarries a certain risk potential because of the high equity stake the manager bears and thepersonal and statutory liability assumed. However, this set-up preserves a high degree offlexibility in managerial decision making.

The number of personnel to be employed depends on the structural complexity of the

operations and the desired size. Figure 2.1 shows a break up of costs in the industry. It isexpected that the target employee earns a monthly salary of $2,000 to $2,200, based on42 hours per week. The sales and service area requires 1 to 2 employees on averageworking in 2 shifts. Due to illness and vacation times, in the long run an average of 4permanent employees will be required after the start-up phase. With increasing sales andbetter utilization of employee work time, revenue margins will increase and thus, costsper employee will decrease on average. With revenues ranging around $500,000,capacity utilization is expected to be around 85%.


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During the start-up phase, a single person will attend to all necessary management task,coordinate employees and provide strategic direction to the developing business.Accounting, administrative and machine maintenance will be outsourced to an externalpartner, since those tasks can typically be provided at better rates externally. Sourcing

and marketing will require one employee.

Finding the optimal location for a business is one of the success factors in the short andlong run. The following analysis is based on 10 businesses in the security industry. Sincea small company is recruiting its customers typically from the regional and later from anational area, a regional location is considered as the core market.

For the location the following factors are regarded as relevant:

The taxes and other administration costs are low.Administrative costs are expected to be comparably small given the expected revenues.The possibility to recruit additional personnel is favorable.Public institutions are expected to provide additional sponsoring.It is easy to find appropriate employees.

Because of the favorable growth perspectives in the chosen market and growinginvestment activities, we expect to realize yearly growth rates in revenues of 15-18%given a 4% economic growth rate.


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3. Business Plan Security Service Company

One of the key elements of a successful business in the security service industry is theselection of services that are currently as profitable as possible. This depends on the inputcost of these services, the costs for the process and the sales price.

The specific selection of services and applications offered will be monitored constantly andvary according to business needs. The selection will include low and high pricedcombinations, as well as new and innovative elements. This strategy provides a competitiveedge against other service companies in the environment and is expected to generate anadditional demand and the possibility for a price mark-up. Such mark-ups are impossible toachieve in the classical service segment, since the high competitiveness of this segmentcompetes away any price differentials. New equipment and services with an additionalfunctionality for the customer will have a mark-up potential of 8-10% above average, whilethe additional cost is minimal at 5%. This provides a 10-15% margin. Such strategy shouldfocus on items with the highest mark-up potential for the future.

The development of a sales structure for the trading of security equipment is one of the mainrevenue drivers. A comprehensive product database will be one key element of a successfulbusiness. The costs for the input goods, storage, delivery are the main elements for thedetermination of the sales price and the selection of optimal goods. To optimize earnings, thefollowing products show the highest demand:

Security equipmentVideo and electronic equipment


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4. Services

Additional company service offerings independent from the core process for privatecustomers provide other fields of business. The available competence will be used for furtherbusiness activities that will generate additional revenues. While this is not a core businesssegment, this concept has growth potential because the demand for services is rising.Initially, the investment in inventory, technical equipment and personnel capacity of thissegment is limited.


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5. The Industry, Competition, and Market

A careful analysis of the market and competitive forces in this industry is a key element inassessing the business potential of our project. This analysis will provide marketing and salesdata that are indispensable to develop the business potential optimally. The main competitorsare comparably-sized service companies in the regional environment with a similar selectionof products and services. Since the planned project is of national scope, the competitiveanalysis will only have to focus on the whole US market. The market and competitionanalysis will be based on the entire US market.

5.1 Market Definition

Figure 5.1 shows average growth figures in revenues of typical security servicecompanies during the past 10 years. Despite slowing global economic growth in general,and in several industries in particular, a lot of companies have experienced constantgrowth rates of more than 15% to 25% since 1999. For 2004 and 2005, a growth of 15%to 19% is expected with a strong development in the third and last quarter. The reason forthis pattern is a strong demand for security service offering with competitive prices.

Despite slowing world-wide economic growth and decreasing customer demand, thesecurity service industry underwent a relatively favorable development. New andinnovative business concepts in the sector still show high growth potentials, while growthrates of traditional businesses in that industry were below average. The significantgrowth of new business concepts is primarily due to sharp cost control and more efficientbusiness strategies that accounted for higher revenue and earning figures. According toindustry estimates, 30% of such innovative businesses gained from cross-sellingactivities between their business segments. Sinking prices of input products and servicecosts have allowed the industry to partially compensate for slowing demand. Savings ininput costs were also due to decreased labor costs. However, starting in 2005, this trend isexpected to reverse and growth rates will pick up markedly, despite the uncertainty in thedevelopment of input prices and worldwide economic developments.

5.2 Primary Competitors

The competitive environment is primarily determined by the choice of item groups, but


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also the regional location. But, regardless of the selection of items, high mark-ups are notfeasible in the long run since this will attract competitors who compete away any rents.With a high density of businesses in one location, businesses with the highest marginalcost will be driven out of the market. Such locations will yield a return of 12-14% onaverage. This is the expected equilibrium return in a saturated market. To further analyze

the competitive environment, it is necessary to define the players in that environment. Afirm that generates $300,000 to $1,000,000 in revenues and employs 5 to 10 peopleshould regard a firm with revenues and personnel 3 times this figures as a viablecompetitor. On the product and service side, businesses with a comparable selection ofoffers are regarded as competing in the same market segment. Figure 5.4 shows the sizeof businesses in this market segment, which also includes different products and servicesthat will be sold worldwide. The numbers are based on average revenues of companiesthat run their business more than five years.

5.3 Customer ProfileThe way of distribution and offerings primarily targets large companies. A possiblesegmentation to identify different customer groups is by segmentation of different linesof business. Figure 5.2 shows the demand for security services from different lines ofbusiness. Numbers are based on averages per company of a particular group multipliedby the number of companies in the respective group. This gives total demand share pergroup. As can be seen, companies in the industry segment companies have a high demandfor security services. Also, other industries, like telecommunication and informationtechnology, have a growing demand because of large buildings. Figure 5.3 showsrevenues by yearly income of potential private customers. The figure shows revenuesgenerated per profit group. Numbers are based on the average profit per customer and the

number of customers per income group. As can be seen, customers in the middle incomebracket generate the highest income streams. High frequented low income groups, suchas small and medium companies, generate relatively low streams.


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6. Marketing Plan

In the start-up phase, it is a central task of the marketing concept to establish namerecognition and a unique trade mark. Later on, the strategy will primarily be targeted to gainnew customers and create customer loyalty of repeat customers. Several marketing and salespromotion strategies are available in the security service business. Figure 6.1 shows differentmarketing elements and their use in marketing strategies, as well as their estimated potentialsuccess factor. The figure can serve as a direction for the planning of a marketing and salespromotion strategy. The numbers are based on typical businesses in the considered industry.As can be seen, printed advertisements target a large potential customer group, but at arelatively high cost. Printed advertisements in regional and national newspapers andmagazines are regarded as very beneficial in the start-up phase to attract a large group ofpotential customers and draw attention to the range of articles offered. 49% of businesses inthe service industry use printed advertisements and about 60% of this group regard this as themost beneficial form of marketing. Sales promotion strategies have temporary effects only.They are used at business openings primarily and offer special discounts. 49% of businessesuse sales promotion strategies frequently and 81% of the users responded that this instrumentis successful. Marketing alliances with other online businesses to generate cost savings andincrease efficiency are used rarely. Such strategies include mutual use of marketing and webpromotion events and joint promotion arrangements. Only 45% of businesses have used theseelements and 55% of these regard this instrument as beneficial. Web and e-mail marketing isused frequently in the business industry, although this would be a relatively inexpensiveadditional effort. Direct mailings are a very efficient strategy that sends mailings to selectedcustomers or industry groups. Since spreading costs of such mailings are very low, thismarketing element provides a useful tool for special offer promotions.

The use of marketing and sales promotions proceeds as follows: as a broad base to attractnew customers, the strategy will include a combination of printed advertisements and specialoffers with opening discounts. Furthermore, a group of customers will be selected for directmailings. This strategy is expected to continue for 3-4 months, after which the effort will turntowards creating customer loyalty for regular customers. This strategy is supplemented by aregular marketing strategy and direct mailings to regular customers. A marketing allianceand online advertisements will also come to use.


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from Section 7.2. Liquidity must always be positive.

Section 7.4 contains a long-term profit projection for the first 4 years of business. Theprojection shows the critical amount of revenues at which the business is profitable and howprofit develops over time.

Section 7.5 provides a risk analysis. The risk analysis contains critical factors that mayimpact the financial numbers presented in this plan.

7.1 Investment Plan

The investment plan comprises primary capital needs for the foundation and operation ofa security service company with different products and services for sale. The plan alsoincludes initial marketing and sales promotion expenses.

The figures are based on a business with 3-5 employees and expected revenues of


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$350,000 in year 2-3.

7.2 Break-even Analysis

The break-even analysis shows how earnings rise as a function of sales. The break-evenpoint is the point at which revenues from sales cover total costs (fix costs and costs risingwith sales). This analysis is important for the development of the liquidity plan. If thebreak-even point is not achieved, in the long run the business loses liquidity and may

become insolvent. This requires that a critical amount of revenues must be generated.

At a sale revenue of $150,000 and given fixed costs, the business will generate a profit.Fixed costs are estimated at $90,000 to $100,000 and variable costs at $50,000.

At a realizable revenue of $500,000, after 2-3 years profits will rise to $225,000 pre-tax.This represents an earnings margin of 25% pre-tax and 14% after-tax. These estimatesare realistic in this market segment. Increasing sales volume will increase pre-tax


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earnings margins, but this development reverses when administrative costs begin to risesharply. Up to a sales volume of $1,000,000, earnings margins rise to 27.5%, after whichthe margin decreases to constant 25.5%.

Figure 7.3 shows at which critical sales volume the business generates a profit. This

serves as a base for a pricing strategy. Additionally, the graph shows the amount of salesat which a marketing campaign can be run profitably.

7.3 Liquidity Plan

The liquidity plan shows the amount of finances necessary to assure permanent liquidity

of the business. The plan is based on 4 representative months of a typical business with 3to 5 employees and annual sales of $300,000. Revenue estimates are drawn from astandard normal distribution.


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7.4 Earnings Plan

The earnings plan shows the results from ordinary operations. The plan is based on thefirst 4 years of business. Revenue estimates are drawn from a normal distribution with anestimated growth rate of 10 to 20%.


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7.5 Risk Analysis

The risk analysis considers critical factors that may lead to a failure of the businessconcept. Such factors can involve failures during the implementation phase, as well asduring operations. Such potential factors are ordered according to the probability atwhich they can arise. Shown is the key factor that led to the failure only. Data are drawnfrom questionnaires of 17 businesses in the security service industry with comparableproduct offerings and revenue- and cost structures that operate more than 3 years withpositive earnings, as well as analyses of different research institutes from majoreconomies.

1. Insufficient demand: This is an important reason that leads to business failure.This includes permanently low demand, as well as a temporary collapse in demand. Oftendemand estimates were too optimistic at the outset. Such failures might also come fromexternal shocks instead of operating deficiencies. 27% of businesses with insufficientdemand go bankrupt. 50% of these businesses report that, once demand slacked, they didnot react accordingly, because they believed that this phenomenon was only temporary.


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Since the expected frequency of customers during the start-up phase is still low, a criticalsuccess factor is to focus promotional effort so as to generate customer loyalty early on,which will help minimize the effects of demand fluctuations. This is also important forthe future development of the business.

2. Personnel and capacity utilization: Often personnel capacity cannot be adjusted easilywhen demand slows down. Currently, service businesses have a capacity utilization rateof personnel of 72% to 75%, i.e. 75% of employee working hours can be directly creditedto sales. At small businesses this value is often lower, which means that 30% of workinghours arise without generating any further revenue. 15% of such businesses go bankruptfor this reason.

3. Technological problems: This is frequent reason that leads to business failure. If it is notpossible to set up a just-in-time service system that works without fundamental problems,it can happen that the initial investment is too low and a liquidity problem occurs.Therefore, a comprehensive technical plan that contains all details and experienced

employees are necessary in the development phase. About 14% of the companies are notable to run their business because of technological problems.

4. Behavior of Competition: Due to low entry barriers in this line of business, othercompanies, like large industry firms, can enter the market at low cost. Approximately14% of insolvent businesses were driven out of the market by that competition. A betterservice concept, innovative ideas with new technologies in the service area, acomprehensive offer and concentration on core businesses are easy means for an entrantto gain a competitive edge.

5. Liquidity constraints: Another frequent reasons for bankruptcy is insufficient

liquidity. In that case, it is possible that all liquid funds are used to cover losses or thatliquidity needs were planned too tight. To be able to flexibly react to changing liquidityneeds, it is important that sufficient funds be planned, even during the start-up phase.Thus, 5-10% of the investment sum should be held as liquidity reserve permanently. 13%of insolvent businesses reported liquidity as the reason for bankruptcy.

6. Over-indebtedness: Many business are run on a small equity base. The majority ofinvestments are funded by debt. If the business becomes unprofitable, debt obligationscannot be covered. Little more over 9% of insolvent firms reported over-indebtedness asthe reason for going bankrupt. It is therefore important that a share of earnings is retainedfor debt service.

7. Macroeconomic Conditions: In a cyclical downturn, revenue expectations maynot come in according to expectation. Although this factor does not affect the business initself, it does have an impact on profitability, liquidity and leverage. Costs remainconstant during such periods, but revenues typically decrease which affects overallprofitability. 8% of all insolvent businesses report that they went bankrupt due tomacroeconomic conditions, although the relevant indicators of the business lookedhealthy.


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Figure 7.5 shows the relative importance of each factor for businesses that went bankrupt.The numbers are based on the most relevant reason that triggered bankruptcy, but not thereason responsible for bankruptcy. External factors that changed the competitiveenvironment and changing macroeconomic conditions were the most important reasons

relative to internal factors.


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8. Conclusion

The security business with different offers from business security services to securityconsulting elements is a growing business that shows a positive dynamic between 12% to15% for the next few years, depending on the current economic growth rates. Thecompetition in this field of business shows a low, but growing, development. New companiesin this business can be sure to have a high demand with a high sales margin.

The relatively modest investment requirements and running costs compared to otherbusinesses provide a favorable argument, since external funds from banks becomes moredifficult given that the risk aversion to finance such ventures has risen. A company withspecific technology and innovative ideas has good chances to move into profitable marketniches and run a successful business. Market conditions change constantly as do customerdemands. This is the chance for businesses with innovative ideas and new offerings to securea dependable customer basis. Service and support tools are a critical factor that can earn acompetitive edge. This is also true for new trends in the security service industry to bettercontrol costs and increase efficiency.

For a successful operation of a security service company, five factors are critical and centralfor the business strategy:

- In the security service industry, it is important that the customer experiences very low pricesand also competent service. This will secure customer loyalty in a market that is verycompetitive.

- New security products with an innovative technology are required to satisfy the demand ofthe customers. It is also necessary to save resources because of the low margin in thisbusiness.

- The utilization of personnel capacity is critical for the long-term profitability because ofchanging margins and the constraints to flexibly reduce personnel. Therefore, the additionalselling of security equipment is a further segment of the business that is integrated in thesale of the whole business process.

- A critical factor in the security service industry is quality management. Better quality ofsecurity products and services at lower cost increases customer satisfaction. Deficiencies inservice quality can lower demand, while good service quality can help create customer

loyalty.

- Cost management is a critical success factor for businesses in industries where margins arelow. Computer aided planning for the store is an integral part of cost management.

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