Financial Barriers in the Industry
What’s your biggest obstacle to growth? Security Integrators are facing a rapidly evolving marketplace. DIY technologies are a serious challenge in the retail segment and even becoming challenging in certain SMB sectors. Additionally, staying on the cutting edge of technology in an environment where storage hits the clouds and devices achieve breakthrough innovations puts demands on training, staffing, and generally meeting more informed prospects. While these issues may get most of the industry headlines, financial issues loom the largest.
In a recent survey of more than 800 owners of security integration firms, 73% noted that ‘funding expansion’ was the biggest hurdle to achieve growth.
The Limitations of Funding Growth with Cash Reserves
We all understand that new truck sales requiring a 100% cash investment would suffer. It takes time to build cash reserves in any business, but especially in a monthly recurring revenue-driven industry like security. If each new customer requires a fixed investment in technology, it can take months to years to recover the investment and start achieving an effective ROI. Relying on your cash position to fund the up-front investment required to establish new customer relationships saddles integrators with growth limitations. Funding growth with cash reserves can limit the pace of adding new customers and even limit an integrator’s ability to reach larger prospects.
A Finance Strategy
Do you have the long-term business to support the equipment investment? Do you have the staff to support growth? Do you need to invest in service capabilities or marketing before equipment? These are all questions that might intimidate integrators and push them away from attaining their vision. But financing can help you minimize these business risks of your expanding vision.
A solid finance strategy can change your entire outlook on prosperity. A smaller provider of household services can quickly scale into new geographies or expand into SMB, retail, office, and larger commercial relationships without pressure on cash reserves. Financing allows you to have a strategy where you pay for what you use (or what your customers use). This approach improves cash flows – the most critical financial measure for a growing company – and preserve cash balances by avoiding lumpy capital expenditures as new business arrives.
Lenders and the Security Business
One of the biggest problems with implementing a finance strategy is understanding the limitations of ‘traditional lenders’, like banks. Integrator revenues backed by contracts are difficult for banks to recognize as receivables leading to their inability to lend against the revenue stream as collateral. Additional, most traditional lenders have difficulty with the underlying security technologies as well. Technology moves quickly, and underwriters struggle to assign collateral values for relatively small ticket assets they cannot take possession of and redeploy in a secondary market. Most lenders are not equipped to find value in the two major asset classes that make up the balance sheet of the average integrator. As such, bank working capital lending and technology lending rarely meets the needs of anything short of the most modest growth plans.
Integrators might look to non-traditional funding relationships with strong industry knowledge when implementing a finance strategy. These relationships offer a few strategic benefits:
- The ability to fund your smallest and largest customer installations.
- Strong understanding of the cash flow implications faced by integrators.
- Creative lease finance alternatives like ‘discounting’ that allows integrators to sell their stream of payments at a discount in exchange for up-front funding.
- The ability to offer bill and collect services as an extension of your team—freeing you up to focus on revenue-producing activities instead of revenue collection activities.
- Offering the ability to scale for growth.
For more than 30 years, TimePayment Corp. has offered flexible monthly lease payment options for security equipment needs starting at $500 and reaching to $500,000 and beyond. From startups to growing national brands and local dealers to major equipment manufacturers, over 1 million companies have trusted Timepayment’s innovative technology tools and creative capital to fund equipment needs and power sales.
