Business, Mid-Market & Industrial

How to Underwrite a Security Guard Services Company

Underwrite a security guard company by building a contract schedule with bill rates, guard wages, hours and renewal dates, then testing gross margin after overtime, turnover and insurance. The metrics that matter most are gross margin per billable hour, overtime as a share of hours, contract retention, client concentration, and liability claims history.

What makes security guard services underwriting different

Security guard companies sell staffed hours under contracts with property managers, corporate campuses, hospitals, retailers and government agencies. Revenue is recurring, but contracts often allow termination on short notice and are rebid regularly. Margin depends on the spread between bill rates and guard wages, plus payroll taxes, insurance, uniforms and supervision. Unplanned overtime from call-outs and turnover can wipe out margin, and many contracts do not allow overtime billing. Guard licensing, training and background checks are regulated by states. Liability exposure from guard actions, including use of force, can be significant, and armed guard services carry more risk and different insurance needs.

Lenders focus on contract stability, receivables quality, insurance coverage and wage pressure, and they often use receivables-based facilities because guards are paid weekly before clients pay. They pay particular attention to government contracts, which can be stable but slow to pay and subject to rebid rules. Equity buyers value density in a metro area, specialty verticals such as healthcare, logistics or critical infrastructure, technology-enabled services like remote video monitoring that lift margins, and acquisitions that add scale. Equity may pay for growth and margin expansion, while lenders size debt on in-place contract margins and protect against wage increases and liability claims.

Key metrics

Gross margin per billable hour

Shows the spread between bill rates and fully loaded guard cost.

Overtime percentage

Unbilled overtime erodes margin and signals staffing shortages.

Contract retention rate

Shows durability of revenue in a market with frequent rebids.

Guard turnover

High turnover raises recruiting, training and overtime costs.

Client concentration

A few large contracts can make up a significant share of revenue.

Underwriters often scrutinize any client above about 10 percent of revenue.

Liability claims and insurance cost

Claims history affects insurance availability and cost.

How to underwrite it, step by step

Build a contract schedule with bill rates, wage rates, hours, term and renewal dates.
Calculate gross margin by contract after payroll taxes, insurance and overtime.
Analyze overtime trends and guard turnover.
Review contract terms for termination, wage pass-through and liability.
Review state licensing, training records and background check procedures.
Review insurance policies and claims history.
Analyze receivables and client concentration.
Size debt on contract-based EBITDA with receivables financing for payroll.

Due diligence checklist

Contract schedule with bill and wage rates
Copies of top client contracts
Payroll and overtime reports
Guard turnover data
State licenses and training records
Background check policies
Insurance policies and loss runs
Incident reports and claims history
Accounts receivable aging
Audited or reviewed financial statements

Key risks and mitigants

Contracts lost in rebids.

Review retention history and rebid schedule; stress loss of top contracts.

Wage increases without pass-through.

Review contract terms and model wage increases.

Liability claims from guard actions.

Review claims, training and insurance limits.

Overtime from staffing shortages.

Analyze turnover and recruiting, and stress overtime costs.

Licensing compliance failures.

Audit licensing and training records.

Typical financing and deal structure

Security companies commonly fund payroll through receivables-based revolvers or factoring, with eligibility limits on government and slow-paying clients. Smaller firms are often acquired with SBA 7(a) loans and seller notes, while larger platforms use senior or unitranche debt with delayed draw facilities for tuck-in acquisitions. Because contracts can be rebid or cancelled, sellers frequently receive earnouts tied to contract retention or gross profit after closing. Lenders require evidence of general liability, workers compensation and auto coverage, with higher limits for armed services, and review state licensing. Covenants usually include fixed charge coverage, leverage limits and borrowing base reporting.

Red flags

Large contracts up for rebid soon after closing.
Overtime rising and margins falling.
Significant liability claims or insurance cancellations.
Guards working without required licenses.
Contracts that prohibit wage pass-through in markets with rising wages.

Frequently asked questions

How are security guard companies valued?

Security guard companies are generally valued on a multiple of adjusted EBITDA. Buyers pay more for long-tenured contracts, specialty verticals, technology-enabled services such as remote monitoring, and diversified clients. Companies dependent on a few contracts, with high guard turnover and rising unbilled overtime, usually see lower valuations because their margins are less durable.

Why does overtime matter in security services?

Posts must be covered even when a guard calls out or quits, so other guards often work overtime at premium pay. Many contracts do not allow the company to bill that overtime, so the cost comes straight out of margin. Underwriters track overtime as a share of total hours because rising overtime often signals turnover and recruiting problems.

What insurance does a security guard company need?

Security companies typically carry general liability, workers compensation, auto and often professional liability or errors and omissions coverage, with higher limits and specific endorsements for armed services. Clients frequently set minimum limits in their contracts. Lenders review policies and loss runs to confirm the company can absorb a serious incident without threatening its finances.

Can you use an SBA loan to buy a security company?

Yes. Smaller security guard companies are often acquired with SBA 7(a) loans. Lenders review contract stability, margins by contract, insurance, state licensing and receivables quality, along with the buyer's management experience. A seller note or earnout tied to contract retention is a common part of the structure.

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Educational content, not investment, credit, legal or tax advice. Benchmarks are common practitioner rules of thumb and vary by lender, market and cycle.