How to create a financial forecast for an alarm monitoring and response firm?
Creating a financial forecast for your alarm monitoring and response firm, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows.
This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your alarm monitoring and response firm is not that hard.
In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.
Without further ado, let us begin!
Why create and maintain a financial forecast for an alarm monitoring and response firm?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your alarm monitoring and response firm becomes handy.
Creating an alarm monitoring and response firm financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your alarm monitoring and response firm.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for an alarm monitoring and response firm is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your alarm monitoring and response firm's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is needed to build an alarm monitoring and response firm financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start an alarm monitoring and response firm, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the alarm monitoring and response firm on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing alarm monitoring and response firm, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your alarm monitoring and response firm's financial forecast.
The sales forecast for an alarm monitoring and response firm
From experience, it is usually best to start creating your alarm monitoring and response firm financial forecast by your sales forecast.
To create an accurate sales forecast for your alarm monitoring and response firm, you will have to rely on the data collected in your market research, or if you're running an existing alarm monitoring and response firm, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Customer demand: The number of monthly transactions for an alarm monitoring and response firm will be influenced by the demand for security services in your target market. The higher the demand, the more customers you are likely to have, resulting in a higher number of transactions.
- Competitor pricing: The average price for your services may be affected by the pricing strategies of your competitors. If they offer lower prices, you may need to adjust your prices accordingly to remain competitive.
- Technological advancements: New technologies in the alarm monitoring and response industry may affect your average price. For example, if a new, more advanced system is introduced, customers may be willing to pay a higher price for the added security features.
- Geographical location: The location of your business may also play a role in the average price for your services. For example, if you are located in a high-crime area, customers may be more willing to pay a higher price for your services.
- Economic conditions: The state of the economy can also influence your average price and number of transactions. In times of economic downturn, customers may be more price-sensitive and opt for lower-priced services, resulting in a decrease in both price and transactions.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for an alarm monitoring and response firm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your alarm monitoring and response firm on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for an alarm monitoring and response firm will include some of the following items:
- Staff Costs: This includes salaries, benefits, and training costs for your team of alarm monitoring and response professionals.
- Accountancy Fees: You'll need to hire an accountant to manage your financial records and ensure compliance with tax regulations.
- Insurance Costs: As an alarm monitoring and response firm, you'll need to invest in insurance to protect your business from potential liabilities.
- Software Licenses: You'll need to purchase and renew licenses for the software used to monitor and respond to alarms.
- Banking Fees: You'll incur fees for maintaining a business bank account and processing transactions.
- Rent: If you operate out of a physical office, you'll need to pay rent for the space.
- Utilities: This includes expenses for electricity, water, and other necessary utilities for your office.
- Marketing and Advertising: To attract new clients, you'll need to invest in marketing and advertising efforts.
- Vehicle Expenses: If you have company vehicles for your team to use for responding to alarms, you'll need to account for fuel, maintenance, and insurance costs.
- Training and Education: As technology and best practices evolve, you'll need to invest in ongoing training and education for your team.
- Office Supplies: This includes items like paper, pens, and printer ink that are necessary for day-to-day operations.
- Telephone and Internet: You'll need to pay for phone and internet services to communicate with clients and respond to alarms.
- Legal Fees: If you need to consult with a lawyer for any legal matters related to your business, you'll incur fees.
- Maintenance and Repairs: This includes expenses for maintaining and repairing equipment used for monitoring and responding to alarms.
- Taxes: You'll need to pay various taxes, including income and payroll taxes, as a business operating an alarm monitoring and response firm.
This list will need to be tailored to the specificities of your alarm monitoring and response firm, but should offer a good starting point for your budget.
What investments are needed to start or grow an alarm monitoring and response firm?
Creating and expanding an alarm monitoring and response firm also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an alarm monitoring and response firm could include elements such as:
- Alarm monitoring systems
- Response vehicles (e.g. cars, trucks, motorcycles)
- Surveillance cameras and equipment
- Emergency response equipment (e.g. first aid kits, fire extinguishers)
- Communication devices (e.g. two-way radios, cell phones)
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your alarm monitoring and response firm.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your alarm monitoring and response firm
The next step in the creation of your financial forecast for your alarm monitoring and response firm is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for an alarm monitoring and response firm?
Now let's have a look at the main output tables of your alarm monitoring and response firm's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy alarm monitoring and response firm's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established alarm monitoring and response firm will look different than for a startup.
The projected balance sheet
Your alarm monitoring and response firm's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow projection
The cash flow forecast of your alarm monitoring and response firm will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the alarm monitoring and response firm's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your alarm monitoring and response firm is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your alarm monitoring and response firm's financial plan.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your alarm monitoring and response firm's financial forecast?
Using the right tool or solution will make the creation of your alarm monitoring and response firm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your alarm monitoring and response firm's projections
The modern and easiest way is to use an online financial forecasting tool such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our projection software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional alarm monitoring and response firm financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your alarm monitoring and response firm's financial forecast?
Creating an accurate and error-free alarm monitoring and response firm financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own alarm monitoring and response firm, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your alarm monitoring and response firm.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for an alarm monitoring and response firm. Don't hesitate to contact us if you have any questions!
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Financial forecast example
- How to project revenues for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
