Security and low-voltage bookkeeping: recurring revenue

Security and low-voltage companies are unusual among contractors: the most valuable thing many of them own is not equipment or a backlog of jobs, but recurring monthly revenue — monitoring, service agreements, hosted video and access control billed every month. It is what the business is valued on if it is ever sold, and it is the part most contractor books handle worst.

Recurring revenue is its own line

Separate recurring revenue — monitoring, cloud video, access control hosting, service plans — from installation and project revenue, with its own income accounts. Then track it as a balance, not just a total:

• Recurring revenue at the start of the month
• Plus new accounts added
• Minus accounts cancelled
• Equals recurring revenue at the end of the month

That movement is the most important report in a security business. A month where total revenue rose because of a big install, while recurring revenue shrank because of cancellations, is a month the business went backwards. See what a recurring contract is actually worth — the attrition logic is identical.

Installs sold at a discount

Many security companies discount or subsidize the installation to win a multi-year monitoring contract. That is a legitimate strategy — as long as the books show it.

Record installs at their real cost, so a subsidized install shows as the loss it is, and track how long each account’s monitoring revenue takes to recover that cost. An account that cancels before the install is paid back lost money, and knowing your typical payback period is what makes the subsidy decision sensible rather than hopeful.

Prepaid monitoring is earned monthly

Customers who prepay monitoring annually have paid for twelve months of service you have not yet delivered. For management purposes, that prepayment is earned month by month; treating it all as revenue in the month it arrives makes that month look far better than it was and the following eleven worse. How it is treated for tax is a question for your CPA.

The cost of servicing an account

Third-party central station fees, cellular communicator charges, cloud platform fees and software licenses are usually charged per account, per month. They are the direct cost of recurring revenue and belong against it, not in general overhead. Recurring margin — recurring revenue minus these per-account costs — is the figure to watch.

Commercial low-voltage projects

Structured cabling, access control and camera installations for commercial buildings are construction projects: bids, materials, labor, pay applications, often retainage and lien waivers, sometimes prevailing wage. Cost them per job like any contractor’s project. See job costing for contractors, retainage explained and prevailing wage and certified payroll.

Equipment for projects — panels, cameras, readers, cable — should be coded to the job when purchased. Stock held for future installs is inventory.

Service calls and truck stock

Service technicians carry parts and devices. Truck stock is inventory; count it against what was billed out. See truck stock and inventory.

Dealer programs and account sales

Some companies sell monitoring contracts to larger dealers or buy account portfolios from others. Those transactions have accounting and tax consequences well beyond ordinary bookkeeping — get your CPA involved before signing, and keep the account-level records that any buyer will ask for.

Related

• Electrical: service work vs new construction
• What your books are worth when you sell
• The customer lifetime value calculator

General information, not tax advice. Revenue recognition for tax purposes is your CPA’s decision.