How Much Is a Security Business Worth?
A security business is worth what its maintainable earnings support, and the question that matters most is how much of those earnings recur. Monitoring and maintenance charges that keep arriving, on contracts that can be assigned and with low attrition, are worth more than installation income that has to be won again or guarding income that is mostly labour. The worked example below uses illustrative figures.
- Recurring monthly revenue is separated from installation income, which has to be earned again.
- Attrition decides how long recurring revenue lasts, so two businesses with the same monthly revenue can be worth different amounts.
- Written contracts that can be assigned to a buyer are worth more than rolling month-to-month arrangements.
- One-off work, such as replacing communicators after a network closure, is removed from maintainable earnings.
- Guarding is judged on contract terms, award compliance and margin per hour, and it is assessed separately from monitoring.
What decides the value of a security business?
Its maintainable earnings, and above all how much of them recurs. Monthly monitoring, maintenance and rental charges keep arriving after the installer has left the site. Installation income has to be won again, and guarding income is labour that must be paid at award rates. A valuer separates the three, because each is judged on different evidence.
Many security owners started as electrical tradies, locksmiths or technicians and added monitoring or guarding later. The owner’s own work is replaced at a market cost, and a licence held only in the owner’s name is a risk and not an asset. The wider list of factors is on our page on security business valuations. Every figure below is illustrative. None is a benchmark and none describes a real business.
How does attrition change what monitoring revenue is worth?
Monitored customers leave when they move premises, switch provider or stop paying, and the attrition rate decides how long the recurring revenue lasts. Two businesses with the same monthly revenue are different assets if one loses 10% of its sites a year and the other loses 20%.
| Attrition of 10% a year | Attrition of 20% a year | |
|---|---|---|
| Sites after one year | 900 | 800 |
| Sites after two years | 810 | 640 |
| Sites after three years | 729 | 512 |
| Annual recurring revenue today (1,000 sites at $40 a month) | $480,000 | $480,000 |
| Annual recurring revenue after three years, at the same price | $349,920 | $245,760 |
| Share of today’s recurring revenue left after three years | 72.9% | 51.2% |
Illustrative figures only. In practice the business also adds new sites and can raise prices, so the table isolates what the existing base is worth on its own.
We read attrition month by month over several years, with the reasons for cancellations where they are recorded, and look at what the business did to hold or replace lost sites. We also check whether contracts are on a written term and can be assigned to a buyer without each customer’s consent. Customers on a written term are usually worth more than customers on a rolling monthly basis.
Our guide on recurring maintenance contracts and business value explains how contract revenue is weighed more generally.
How is a monitored base turned into a value?
We rebuild earnings stream by stream. Recurring revenue less the cost of serving it gives recurring contribution. Installation contribution is averaged over several years, because it is lumpier. Overheads, including a market wage for the owner, come off both. The result is capitalised, and we then test it against what the existing base alone would produce.
Illustrative security business: earnings value and a test against the monitored base
Illustrative- Recurring revenue: 1,000 monitored sites at $40 a month
- $480,000
- Less: wholesale monitoring fees, communicator and servicing costs
- $190,000
- Recurring contribution
- $290,000
- Installation contribution, average of three years
- $120,000
- Less: overheads, including the owner’s role at market cost
- $210,000
- Maintainable EBITDA
- $200,000
- Multiple chosen for illustration
- 3.0 times
- Enterprise value on earnings
- $600,000
- Test: recurring contribution from today’s sites over three years at 10% attrition, no new sites, before overheads
- $707,310
- Test: the same at 20% attrition
- $566,080
Illustrative figures only. The multiple is chosen for illustration and is not a market figure. The test ignores overheads and new sales, so it checks what the existing base supports and is not a forecast.
At 10% attrition the existing sites would produce more contribution over three years, before overheads, than the $600,000 value, so the base supports the figure. At 20% they would produce less, so the same figure would depend on new sales to hold. Equipment ownership matters here too. Where the business owns equipment at customer sites under rental it holds an asset and an obligation to maintain and replace it, and where the customer owns it the business holds a contract but no asset.
One-off work is removed first. Revenue from replacing alarm communicators after a network closure was a spike that will not recur, and we ask whether sites still on unsupported equipment are a risk or a further source of work. Annual charges billed in advance are matched to the period they relate to, with the unearned part treated as a liability.
Some businesses run their own monitoring centre and others use a wholesale provider. Owning a centre brings control and a fixed cost, and outsourcing brings dependence on the provider’s terms and service levels. We read the arrangement, because it changes both the cost of serving recurring revenue and what a buyer must take on.
Technology change is a recurring cost as well. Older systems cost more to support and may need replacing, and the platforms the business sells decide its supplier dependence and training needs. We look at the age and spread of the installed base and ask what the next network or equipment change might cost.
Is a guarding business valued differently?
Yes, because guarding is mostly labour. Wages, penalty rates, allowances and superannuation make up most of the cost of a contract, so we rebuild labour cost per site from rostered hours and check that pay, hours and classifications match the relevant award. An error repeats across every guard and every roster.
Guarding contracts are often retendered, priced on hourly rates and, in some cases, open to termination on short notice. We look at the term remaining, price review rights, tender history and margin per hour by site. Guards engaged as contractors when they are in substance employees create a liability a buyer will price, and subcontracted guards still need the right licences. Whether an arrangement is lawful is a question for your lawyer.
A business that runs both guarding and monitoring is assessed as two streams and then brought together. That is useful if only one stream is ever sold, because the report shows how much of the value comes from each.
Customer concentration is measured separately for project and recurring revenue. A large share of installation work from one builder, retailer or shopping centre carries a risk the profit and loss statement does not show, even when the monitored base behind it is spread widely.
What reduces and what increases the value of a security business?
- Increases: written monitoring contracts that can be assigned. Low attrition and prices that have kept pace with costs add to the case.
- Increases: equipment kept current. Communicators and panels on supported networks mean less forced spending for a buyer.
- Increases: a high share of earnings from monitoring and maintenance agreements. They repeat without being quoted again.
- Increases: licensed technicians and officers who have stayed. Licences held by more than one person reduce dependence on the owner.
- Reduces: profit that comes mainly from installation work for one or two builders. It ends when the relationship does.
- Reduces: a business licence held only in the owner’s name. Licensing rules differ by state, so we describe the facts and leave the interpretation to the regulator and your lawyer.
- Reduces: accounts bought from another dealer and since lost. We check how many transferred and how many remain.
- Reduces: guarding on short contracts and thin margins, or with award compliance gaps.
What should a security business owner prepare for a valuation?
- a monitored customer list with site, monthly charge, start date, contract term, billing frequency and who owns the equipment
- an attrition report by month for three years, with reasons where recorded
- the monitoring centre agreement, or details of the business’s own centre
- business and individual security licences, with holders, classes and expiry dates
- revenue split between installation, monitoring, maintenance and guarding
- the status of communicator and legacy equipment upgrades
- guarding contracts with rostered hours, charge rates and award classifications
An independent valuation then sets out the adjustments and the evidence behind them, and a draft report is provided before it is finalised. Our guide on how much a fire services business is worth covers another business built on routine servicing. When your records are ready you can start online.
This guide is general information, not legal, taxation or financial advice. Examples are illustrative. The appropriate valuation approach depends on the circumstances and purpose of each engagement.