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Question
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Dear Ken,
    Is it possible to get into the business and be competitive as a start up without significant capital or a dealer program?  I had thought about offering clients the chance to pre-pay several years at the time of purchase and bringing them options for finance, but then we have to address RMR after the initial term has expired.  I don't suppose that's a huge problem, but it's different.
    What other business models should I be considering?  If you can help me get a handle on that, I'll be able to afford your contracts!
All the best,
George O
Alabaster, Alabama
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Answer
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    Starting any new business under capitalized is hard, and especially so in the alarm business.  Why?  Because competition is fierce in the alarm industry, installations are offered for free or nominal charge and monitoring and service contracts are relatively cheap.  It's a struggle to get from red to black.  But the good news is that a pot of gold awaits if that pot is filled with proper contracts with RMR, recurring monthly revenue.  That RMR can be for monitoring, inspection, service, lease - long as its recurring monthly revenue.  The goal should be to balance sales with leasing, or accounts where you actually get paid for the installation with reasonable profit so that you can install other systems at or below cost but with a higher RMR.  Eventually the RMR moves you into the black and its easier from then on.  
    Of course with capital you can invest in salesmen, installers, and support personnel and grow at a much faster pace, or you can purchase subscriber accounts and grow overnight.  Dealer programs can be helpful because they have their business models in place.  Be aware that most dealer programs have one or more issues that the dealer program is really interested in.  Thus some dealer programs may be interested in your monitoring, others in your equipment purchases, others in financing your accounts and others in buying your accounts.  Since I am a proponent of growing and keeping your RMR I don't favor dealer programs that end up with your contracts.  Financing your installations or your business is also risky because the profit margins are so tight there is little room for debt service.  
    The alarm business is a service business.  Don't bite off more than you can chew, provide the best products and service you can, spend less than you make.  
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here's an idea for growth - licensing issue
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Ken,
    I was wondering what legal issues might arise with selling DIY alarm panels over the internet.  I have see them come preprogrammed where the end user just needs to plug in the all in one panel and mount the wireless contacts, motions etc. I am confused to how these companies get around local licensing laws. Wouldn't this potentially mean that they would need to be licensed in EVERY state (that requires it)?  
    I think there is a GE all in one panel that I could use.
My reason for asking is, Honeywell just released the new lynx panel with wifi capability.  My father lives in NJ (I live and am licensed in NY) and a few of his friends have asked about alarms for their homes.  I was considering sending a preprogrammed system, seeing how it worked out and then adding that to my sales portfolio.  I am just concerned about possible licensing issues.
AK
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Answer
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    You should be concerned with licensing because you need to check the license requirements in any state where you perform services.  Although you don't need a license to send equipment into a state for self installation by the consumer, you may need a license to monitor that system or service that system.  If you enter into the monitoring contract with the subscriber and then sub out the monitoring to a wholesale central station who is licensed in that state to monitor, that may not comply with the state's license law since you're the one contracting for the monitoring.  Check with our licensing department and engage us if necessary to procure the proper license you may need.  Call or email Jennifer Kirschenbaum, Esq. at 516 747 6700 x 302 or Jennifer@Kirschenbaumesq.com.  
    Remember, which shipping self installed equipment or systems you should have proper contract documentation.  You get that at www.alarmcontracts.com.



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