Business Plan Security Service Company

Contact Information:
18293 Sunset Circle Ocean Beach, CA 92113 (619) 555-0065 lynnc@myisp.com

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

Table of Contents

1. Executive Summary Business Opportunity Product/Service Description 2. Company Background Business Description Company History 3. Business Plan Security Service Company

4. Services

5. The Industry, Competition, and Market Market Definition Primary Competitors Customer Profile 6. Marketing Plan

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7. Financial Plan Investment Plan Break-even Analysis Liquidity Plan Earnings Plan Risk Analysis 8. Conclusion

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Business Plan Security Service Company

1. Executive Summary
The service industry is a growing business segment. The current growth rates show that there is 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. The revenues of this business have a growth rate of about 15% to 17% per year. A company that provides service activities for the customers can be sure to have a high demand and a strong competitive advantage.

The goal of this start-up is the general operation of a security service company. New forms of marketing 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 and solutions seems critical for new industry players to get market shares and survive in this highly competitive industry. The choice of services, as well as the development of new products, can be one strategy in this field of business. Additionally, sound cost management is of critical importance for a solid stream of revenues. Big industry players have shown that even in a competitive market, growth rates of more than 10% can be sustained. The operation of a security service company that offers a range of security services, as well as security equipment is the core of this start-up. A strong focus of this business will be 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 services will be offered, which will help utilize company and employee capacity. The range of products is selected to provide solid growth potentials. This can lead to a fast change of items and services or whole item groups, as well as services. The operation of this business requires a good knowledge of the required security products to develop a competitive service concept to increase customer satisfaction. The demand to explain the handling of special products for the customers is likely to require a high degree of individual customer advice. However, it is critical that this service is offered with a strong focus on cost management. One central goal of the proposed business strategy is the development of a unique corporate identity. Such identity will create customer loyalty and help gain a competitive advantage. Therefore, it is planned that, in addition to the selection of new and interesting services, a company design is developed. For this reason, the service around the offered applications and the additional businesses is very extensive. The required investment for the proposed business is moderate compared to other

Business Plan Security Service Company

companies in the industry. Employment costs are expected to be the main fixed cost driver, whereas no other substantial investment in fixed assets is required. Depending upon 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 amount is 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 business services and security equipment sales. An additional source of revenues is the sale of customized service offers. This will cover the development of security systems. Cross selling is planned to be one of the prime strategies in this business, since all products are targeted to serve a similar need and can easily be combined. Synergy in selling product across business segments is likely to boost earning further. Net earnings are expected to be 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 business environment. As the core business, the security service for business customers and individuals is expected to generate the largest share in revenues. The sale of security equipment is expected to be another important generator of revenues, which also helps utilize invested capacity. The sale of customized services for companies is expected to be intensified, depending upon market conditions.

Business Plan Security Service Company

2. Company Background
The goal of this start-up is the operation of a security service company with different services and equipment sales. The focus of this business will be on the service segment for private customers which shows the highest profits. Additionally, the sale of individual security services for companies is planned to reach an optimal utilization of personnel and company capacity. An initial investment amount of at least $25,000 to $30,000 is required, which will allow the operation 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 profits starting in the second or third business year. 2.1 Business Description Management is expected to have a solid knowledge of the offered services to influence the customers. The goal is to create an innovative business in which the customer experiences competent service. A well chosen and targeted selection of offerings will complement this strategy. Both aspects are core requirements to build customer loyalty. Repeat customers are expected to generate revenues of 40% and more. Although this strategy is likely to require additional investments, it is expected that revenues per customer will increase significantly and range above industry average. Furthermore, this strategy will provide a clear entrance barrier for prospective competitors. The development and promotion of a corporate identity is another central task for management. Given the homogeneity of businesses in this industry, the development of a corporate identity will markedly increase sales revenues and build a customer base. Furthermore, a corporate identity will support expanding the business to a larger international target market. 2.2 Company History In the start-up phase, the business is operated as a one- person-business. This set up carries a certain risk potential because of the high equity stake the manager bears and the personal and statutory liability assumed. However, this set-up preserves a high degree of flexibility 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 is expected that the target employee earns a monthly salary of $2,000 to $2,200, based on 42 hours per week. The sales and service area requires 1 to 2 employees on average working in 2 shifts. Due to illness and vacation times, in the long run an average of 4 permanent employees will be required after the start-up phase. With increasing sales and better utilization of employee work time, revenue margins will increase and thus, costs per employee will decrease on average. With revenues ranging around $500,000, capacity utilization is expected to be around 85%.

Business Plan Security Service Company

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 external partner, 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 and long run. The following analysis is based on 10 businesses in the security industry. Since a small company is recruiting its customers typically from the regional and later from a national 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 growing investment activities, we expect to realize yearly growth rates in revenues of 15-18% given a 4% economic growth rate.

Business Plan Security Service Company

3. Business Plan Security Service Company

One of the key elements of a successful business in the security service industry is the selection of services that are currently as profitable as possible. This depends on the input cost of these services, the costs for the process and the sales price. The specific selection of services and applications offered will be monitored constantly and vary according to business needs. The selection will include low and high priced combinations, as well as new and innovative elements. This strategy provides a competitive edge against other service companies in the environment and is expected to generate an additional demand and the possibility for a price mark-up. Such mark-ups are impossible to achieve in the classical service segment, since the high competitiveness of this segment competes away any price differentials. New equipment and services with an additional functionality for the customer will have a mark-up potential of 8-10% above average, while the additional cost is minimal at 5%. This provides a 10-15% margin. Such strategy should focus 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 main revenue drivers. A comprehensive product database will be one key element of a successful business. The costs for the input goods, storage, delivery are the main elements for the determination of the sales price and the selection of optimal goods. To optimize earnings, the following products show the highest demand: Security equipment Video and electronic equipment

Business Plan Security Service Company

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

Business Plan Security Service Company

5. The Industry, Competition, and Market

A careful analysis of the market and competitive forces in this industry is a key element in assessing the business potential of our project. This analysis will provide marketing and sales data that are indispensable to develop the business potential optimally. The main competitors are comparably-sized service companies in the regional environment with a similar selection of products and services. Since the planned project is of national scope, the competitive analysis will only have to focus on the whole US market. The market and competition analysis will be based on the entire US market. 5.1 Market Definition Figure 5.1 shows average growth figures in revenues of typical security service companies during the past 10 years. Despite slowing global economic growth in general, and in several industries in particular, a lot of companies have experienced constant growth 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 for this pattern is a strong demand for security service offering with competitive prices. Despite slowing world-wide economic growth and decreasing customer demand, the security service industry underwent a relatively favorable development. New and innovative business concepts in the sector still show high growth potentials, while growth rates of traditional businesses in that industry were below average. The significant growth of new business concepts is primarily due to sharp cost control and more efficient business strategies that accounted for higher revenue and earning figures. According to industry estimates, 30% of such innovative businesses gained from cross-selling activities between their business segments. Sinking prices of input products and service costs have allowed the industry to partially compensate for slowing demand. Savings in input costs were also due to decreased labor costs. However, starting in 2005, this trend is expected to reverse and growth rates will pick up markedly, despite the uncertainty in the development of input prices and worldwide economic developments.

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

Business Plan Security Service Company

also the regional location. But, regardless of the selection of items, high mark-ups are not feasible 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 marginal cost will be driven out of the market. Such locations will yield a return of 12-14% on average. 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. A firm that generates $300,000 to $1,000,000 in revenues and employs 5 to 10 people should regard a firm with revenues and personnel 3 times this figures as a viable competitor. On the product and service side, businesses with a comparable selection of offers are regarded as competing in the same market segment. Figure 5.4 shows the size of businesses in this market segment, which also includes different products and services that will be sold worldwide. The numbers are based on average revenues of companies that run their business more than five years.

5.3 Customer Profile The way of distribution and offerings primarily targets large companies. A possible segmentation to identify different customer groups is by segmentation of different lines of business. Figure 5.2 shows the demand for security services from different lines of business. Numbers are based on averages per company of a particular group multiplied by the number of companies in the respective group. This gives total demand share per group. As can be seen, companies in the industry segment companies have a high demand for security services. Also, other industries, like telecommunication and information technology, have a growing demand because of large buildings. Figure 5.3 shows revenues by yearly income of potential private customers. The figure shows revenues generated 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 income bracket generate the highest income streams. High frequented low income groups, such as small and medium companies, generate relatively low streams.

Business Plan Security Service Company

Business Plan Security Service Company

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6. Marketing Plan
In the start-up phase, it is a central task of the marketing concept to establish name recognition and a unique trade mark. Later on, the strategy will primarily be targeted to gain new customers and create customer loyalty of repeat customers. Several marketing and sales promotion strategies are available in the security service business. Figure 6.1 shows different marketing elements and their use in marketing strategies, as well as their estimated potential success factor. The figure can serve as a direction for the planning of a marketing and sales promotion 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 a relatively high cost. Printed advertisements in regional and national newspapers and magazines are regarded as very beneficial in the start-up phase to attract a large group of potential customers and draw attention to the range of articles offered. 49% of businesses in the service industry use printed advertisements and about 60% of this group regard this as the most beneficial form of marketing. Sales promotion strategies have temporary effects only. They are used at business openings primarily and offer special discounts. 49% of businesses use sales promotion strategies frequently and 81% of the users responded that this instrument is successful. Marketing alliances with other online businesses to generate cost savings and increase efficiency are used rarely. Such strategies include mutual use of marketing and web promotion events and joint promotion arrangements. Only 45% of businesses have used these elements and 55% of these regard this instrument as beneficial. Web and e-mail marketing is used frequently in the business industry, although this would be a relatively inexpensive additional effort. Direct mailings are a very efficient strategy that sends mailings to selected customers or industry groups. Since spreading costs of such mailings are very low, this marketing element provides a useful tool for special offer promotions. The use of marketing and sales promotions proceeds as follows: as a broad base to attract new customers, the strategy will include a combination of printed advertisements and special offers with opening discounts. Furthermore, a group of customers will be selected for direct mailings. This strategy is expected to continue for 3-4 months, after which the effort will turn towards creating customer loyalty for regular customers. This strategy is supplemented by a regular marketing strategy and direct mailings to regular customers. A marketing alliance and online advertisements will also come to use.

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7. Financial Plan
A sound financial plan is the key factor for the success of a business start-up. Investors and banks will base their funding decision on the information given in this plan. Besides a plan of the financial needs, this plan must insure that the business is always liquid and ultimately profitable. Since the sales and earnings projections in the business plan are based on expectations, the financial plan has to be revised and refined on a constant basis so that discrepancies can be uncovered and solved instantly. The inputs for this financial plan are based on 22 businesses of different size and market segments in the security service industry segment, which serve as a group of comparable companies, as well as own estimates based on the planned business environment. Revenue estimates are conservative and expense projections include a cushion for unforeseen contingencies. The initial capital requirement is estimated to be $25,000 to $30,000. The sales margin is expected to be 12-15%, whereby each business segment contributes differently to sales and earnings. The security service segment, of all segments, will have an average contribution to sales in relative terms (14%), but given the high sales volume, the largest in absolute terms. Revenues from sales can be differentiated into those from low priced security goods to expensive protection equipment. The sale of services for company customers is expected to generate a 12% to 15% sales margin, while the margin from sales of services is expected to be closer to 10%. Figure 7.1 shows the source of revenues by single segments during the start-up phase. Depending on the initial investment sum, cost and revenue estimates vary. Figure 7.2 shows the expected relationship of cost and revenues. As can be seen, the relationship is not linear everywhere, but costs decrease relative to sales at an initial investment of $75,000. This effect is due to the better utilization of capacities in personnel at rising revenues at constant cost. If capacity is fully utilized, additional personnel must be recruited. At an investment sum of $100,000, administrative costs are expected to return to a linear relationship of sales. At sales levels between $1,000,000 to $2,000,000, costs increase by the factor 1.85. The cost revenue relationship is important, not only during the start-up phase, but also for planned further expansion. Often such expansion strategies are based on this relationship. Other industries are able to generate cost savings of 30-50% during expansion periods, while for the service industry this factor is close to 15%. At a specific size, this relationship reverses because administrative costs rise sharply. This affects small businesses between 10 and 20 employees most severely. The details of the financial plan are laid out in more detail as follows: Section 7.1 gives an investments schedule. This includes all investments necessary during the start-up phase. Section 7.2 gives a break-even analysis that shows revenues at the break-even point. Every additional sales revenue adds to profit and vice versa. Section 7.3 gives a liquidity plan. This plan is based on current cost and revenue estimates

Business Plan Security Service Company from Section 7.2. Liquidity must always be positive.

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Section 7.4 contains a long-term profit projection for the first 4 years of business. The projection shows the critical amount of revenues at which the business is profitable and how profit develops over time. Section 7.5 provides a risk analysis. The risk analysis contains critical factors that may impact the financial numbers presented in this plan.

7.1 Investment Plan The investment plan comprises primary capital needs for the foundation and operation of a security service company with different products and services for sale. The plan also includes initial marketing and sales promotion expenses. The figures are based on a business with 3-5 employees and expected revenues of

Business Plan Security Service Company $350,000 in year 2-3.

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7.2 Break-even Analysis The break-even analysis shows how earnings rise as a function of sales. The break-even point is the point at which revenues from sales cover total costs (fix costs and costs rising with sales). This analysis is important for the development of the liquidity plan. If the break-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 estimates are 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 rise sharply. Up to a sales volume of $1,000,000, earnings margins rise to 27.5%, after which the 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 sales at 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 3 to 5 employees and annual sales of $300,000. Revenue estimates are drawn from a standard normal distribution.

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7.4 Earnings Plan The earnings plan shows the results from ordinary operations. The plan is based on the first 4 years of business. Revenue estimates are drawn from a normal distribution with an estimated 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 business concept. Such factors can involve failures during the implementation phase, as well as during operations. Such potential factors are ordered according to the probability at which they can arise. Shown is the key factor that led to the failure only. Data are drawn from questionnaires of 17 businesses in the security service industry with comparable product offerings and revenue- and cost structures that operate more than 3 years with positive earnings, as well as analyses of different research institutes from major economies. 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. Often demand estimates were too optimistic at the outset. Such failures might also come from external shocks instead of operating deficiencies. 27% of businesses with insufficient demand go bankrupt. 50% of these businesses report that, once demand slacked, they did not 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 critical success 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 for the future development of the business. 2. Personnel and capacity utilization: Often personnel capacity cannot be adjusted easily when demand slows down. Currently, service businesses have a capacity utilization rate of personnel of 72% to 75%, i.e. 75% of employee working hours can be directly credited to sales. At small businesses this value is often lower, which means that 30% of working hours arise without generating any further revenue. 15% of such businesses go bankrupt for this reason. Technological problems: This is frequent reason that leads to business failure. If it is not possible 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 not able to run their business because of technological problems. 4. Behavior of Competition: Due to low entry barriers in this line of business, other companies, like large industry firms, can enter the market at low cost. Approximately 14% of insolvent businesses were driven out of the market by that competition. A better service concept, innovative ideas with new technologies in the service area, a comprehensive offer and concentration on core businesses are easy means for an entrant to 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 that liquidity needs were planned too tight. To be able to flexibly react to changing liquidity needs, 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 of investments are funded by debt. If the business becomes unprofitable, debt obligations cannot be covered. Little more over 9% of insolvent firms reported over-indebtedness as the reason for going bankrupt. It is therefore important that a share of earnings is retained for debt service. 7. Macroeconomic Conditions: In a cyclical downturn, revenue expectations may not come in according to expectation. Although this factor does not affect the business in itself, it does have an impact on profitability, liquidity and leverage. Costs remain constant during such periods, but revenues typically decrease which affects overall profitability. 8% of all insolvent businesses report that they went bankrupt due to macroeconomic conditions, although the relevant indicators of the business looked healthy.

3.

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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 the reason responsible for bankruptcy. External factors that changed the competitive environment 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 security consulting elements is a growing business that shows a positive dynamic between 12% to 15% for the next few years, depending on the current economic growth rates. The competition in this field of business shows a low, but growing, development. New companies in 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 other businesses provide a favorable argument, since external funds from banks becomes more difficult given that the risk aversion to finance such ventures has risen. A company with specific technology and innovative ideas has good chances to move into profitable market niches and run a successful business. Market conditions change constantly as do customer demands. This is the chance for businesses with innovative ideas and new offerings to secure a dependable customer basis. Service and support tools are a critical factor that can earn a competitive edge. This is also true for new trends in the security service industry to better control costs and increase efficiency. For a successful operation of a security service company, five factors are critical and central for the business strategy: In the security service industry, it is important that the customer experiences very low prices and also competent service. This will secure customer loyalty in a market that is very competitive.

New security products with an innovative technology are required to satisfy the demand of the customers. It is also necessary to save resources because of the low margin in this business. The utilization of personnel capacity is critical for the long-term profitability because of changing margins and the constraints to flexibly reduce personnel. Therefore, the additional selling of security equipment is a further segment of the business that is integrated in the sale of the whole business process. A critical factor in the security service industry is quality management. Better quality of security products and services at lower cost increases customer satisfaction. Deficiencies in service 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 are low. Computer aided planning for the store is an integral part of cost management.