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ALARM CAPITAL ALLIANCE BLOG
Organizational Documents to Have in Order
Documentation is a fact of life when running an alarm business. Customer agreements, central station contracts – they come with the territory and we wouldn’t consider running a business without them. There are, however, other types of documentation that don’t get as much attention, but are just as critical to maintaining a growing, successful company. Whether you’re thinking about selling your business, merging with another, or simply operating at maximum profit, there are some documents that you should always keep up-to-date and organized.
States across the country require alarm service companies to obtain and maintain licenses or certifications. This licensure proves that your company has the proper credentials to safely operate and deliver services as promised. It is important to keep your licensing documentation in a safe place, and to make sure that you renew your license as required. For example, in the state of California, alarm system operators are required to renew their licenses every two years. If you cannot find your license, it is vital to contact the issuing agency for a duplicate or replacement. If your state does not require licensing, it’s a good idea find out if you can at least obtain some sort of certification or recognition to add competitive value to your business.
Your Ownership Structure
Some alarm companies have complicated ownership structures, so to avoid costly misunderstandings, they should be clearly outlined and kept up-to-date in files. If your company is an LLC, organized as a partnership, for example, you’ll need documentation that shows what percentage of ownership each partner has, and whether they are ‘voting’ partners or not. This is not the place to rely on verbal agreements. Have all stakeholders, investors, and any financial interests defined. Include things such as profit-sharing and/or dividend disbursement in your document. Beyond informing good tax-related decisions, having this organized and defined on paper, now, will come in handy when selling or merging your company, as the new owners will want that level of transparency.
Operating agreements are very important as well, and while many businesses may regard them as a formality, a well thought out, forward-looking operating agreement can save you a lot of grief. At minimum, this agreement should detail what your business does, the role or roles each party plays, where it is headquartered, and even basic contact information. But it’s most useful when you take the time to add other vital information including accounting procedures, processes for handling dissolutions, partner buyouts and withdrawals, and more. Should you decide to sell your company in the future; it’s almost like a step-by-step checklist, saving you costly disagreements.
Finally, when it comes to selling or merging your company, it’s important to be up-front and honest about your financial situation. In fact, even if you have no plans to sell, it’s just being fiscally responsible to know where your company stands at any given time. To do so, you should organize and have access to the last several years’ worth of tax returns, bank statements, employee payroll information, profit sharing, stock information (if applicable), and anything else that can help establish your company’s true financial value. Include any documents that outline mortgages on business property, liens on company vehicles, and lines of credit or working capital loans that were used to purchase equipment. Well-organized documentation of your licenses and certifications, ownership structure and operating agreements, as well as financial documents, forms a stable foundation for your growing business. They help communicate the true value you have built and will play a vital role in any transition, whether you sell or merge. Even if you aren’t planning a sale anytime soon, having these documents in order and in a safe place is still a good idea. They’ll give you a clear picture from which to make strategic and financial decisions, and can help you solve costly disputes that may arise from time to time.