Starting a background investigation business can be a lucrative venture for those with a keen eye for detail and a passion for uncovering information.
In today’s world, where security and trust are paramount, the demand for reliable background checks is on the rise.
Whether you’re looking to start your own business or expand your investigative skills into entrepreneurship, here’s a comprehensive guide to help you get started.
What is a Background Investigation Business?
A background investigation business is a service-oriented company that specializes in gathering information about individuals or organizations for various purposes.
This information may include criminal records, employment history, credit reports, and more.
Businesses, employers, landlords, and individuals often hire background investigation services to verify identities, assess risks, and make informed decisions.
These checks aren’t only done for individuals or potential partners; many businesses are also investigated by competitors and legal authorities.
While the business sounds like spy work, in the modern age of information, it isn’t much different from any other business.
Our Verdict
- Think Niche Expertise: Consider specializing in complex investigations (international checks, social media verification) for a competitive edge.
- Offer services to businesses as well as private parties.
- Obtain a business license and connect with the right people. Building relationships is crucial to the success of your business.
- Focus on a niche: Target employment, pre-tenant, or adoption background checks for a specific clientele.
- Comply & Partner: Understand licensing & data privacy laws. Partner with reputable data providers to ensure accurate reports.
- Forget Compliance Updates: Stay updated on ever-changing regulations (like Fair Credit Reporting Act) to avoid legal issues.
- Partner up with shady sources.
- Miss out on automation and technology.
- Compromise on marketing.
Importance and demand in today's market
In an increasingly interconnected world, trust and security are vital components of any transaction or relationship.
From hiring employees to renting properties, individuals and organizations want assurance that they are making sound decisions.
As a result, the demand for thorough and accurate background checks has skyrocketed, creating a lucrative market for background investigation businesses.
According to a market report by Business Research Insights, “The global background check market size was USD 2827.1 million in 2020 and the market is projected to touch USD 4125.8 million by 2032, exhibiting a CAGR of 3.2% during the forecast period.”
With the increase in remote work triggered by COVID, the need for background checks has seen a huge rise. There has been an increase in the demand for background checks for remote employees in the past few years. The trend is expected to continue to rise.
There has been noticeable growth, reflected by the rise in the CAGR of the background research industry.
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Required Equipment and Average Cost
Starting a background investigation business requires a mix of technology, office supplies, and specialized tools to ensure thorough and professional investigations.
Office Equipment
- Computer/Laptop
- Description: Essential for conducting online research, accessing databases, and compiling reports.
- Average Cost: $800 – $2,000
- Printer/Scanner
- Description: For printing reports and scanning documents.
- Average Cost: $150 – $500
- Office Furniture
- Description: Desk, chair, filing cabinets, and shelving.
- Average Cost: $500 – $1,500
- Phone System
- Description: A reliable phone system for client communication.
- Average Cost: $100 – $300 (excluding monthly service fees)
- Internet Connection
- Description: High-speed internet for research and communication.
- Average Cost: $50 – $100 per month
Investigation Tools and Software
- Background Check Software
- Description: Specialized software for conducting comprehensive background checks.
- Average Cost: $50 – $200 per month (depending on the provider)
- Public Records Access
- Description: Subscription services for accessing public records databases.
- Average Cost: $50 – $150 per month
- Social Media Investigation Tools
- Description: Tools for investigating social media profiles.
- Average Cost: $20 – $100 per month
- Case Management Software
- Description: Software to manage and organize cases.
- Average Cost: $50 – $100 per month
- Data Encryption Tools
- Description: For securing sensitive data and communications.
- Average Cost: $50 – $200
Miscellaneous Equipment
- Digital Camera
- Description: For taking photographs during field investigations.
- Average Cost: $200 – $800
- Audio Recorder
- Description: For recording interviews and evidence.
- Average Cost: $50 – $200
- GPS Tracker
- Description: For surveillance and tracking purposes.
- Average Cost: $100 – $500
- Binoculars
- Description: For discreet observation during surveillance.
- Average Cost: $50 – $200
Office Supplies
- Stationery
- Description: Paper, pens, notepads, folders, etc.
- Average Cost: $50 – $200
- Secure Filing System
- Description: To store sensitive documents securely.
- Average Cost: $100 – $500
Marketing and Miscellaneous
- Website Development
- Description: A professional website to attract clients.
- Average Cost: $500 – $3,000 (plus hosting fees)
- Business Cards and Marketing Materials
- Description: Brochures, flyers, business cards, etc.
- Average Cost: $100 – $500
Legal and Professional Services
- Licensing Fees
- Description: State and local licensing fees for operating a background investigation business.
- Average Cost: $100 – $500
- Insurance
- Description: Business liability insurance.
- Average Cost: $500 – $2,000 annually
- Professional Memberships
- Description: Memberships in professional associations like the National Association of Professional Background Screeners (NAPBS).
- Average Cost: $100 – $500 annually
- Legal Fees
- Description: For legal advice and services.
- Average Cost: $200 – $1,000
Total Startup Cost
The total startup cost for a background investigation business can range significantly based on your choices and scale, but here’s a rough estimate:
- Low-end: Approximately $3,500
- High-end: Approximately $12,000
These estimates include essential equipment, software, office setup, and initial operational costs. Adjustments can be made based on the specific needs and scale of your business.
Overview of the Background Investigation Industry
The background investigation industry provides essential services, including pre-employment screening, tenant checks, and due diligence investigations. It helps organizations assess the risk of hiring or working with individuals, ensuring safety, security, and compliance with laws.
The industry is rapidly evolving due to technological advancements, regulatory changes, and growing market demand. Key services include criminal record checks, employment history verification, education checks, and credit history analysis.
Cloud-Based Background Checks
Cloud-based background checks have become popular due to their flexibility and ease of use. They allow businesses to access services from anywhere with an internet connection, enabling faster results and real-time updates. Companies benefit from scalable solutions that grow with their needs while keeping upfront costs low.
On-Premise Background Checks
For organizations that require strict control over their data, on-premise background checks remain crucial. These systems offer more direct data management and heightened security, which is essential for companies in highly regulated industries or those concerned about data privacy.
Market Trends and Growth Opportunities
The demand for background investigation services is expected to keep rising due to increased regulatory requirements and businesses’ focus on mitigating risks. Emerging sectors, such as remote work and the gig economy, are presenting new opportunities. Employers are now more concerned about the reliability and security of freelance and remote workers, making background checks a key component of onboarding.
Automation in Background Checks
Automation, driven by AI and machine learning, is revolutionizing the industry. These technologies allow for faster and more accurate screenings by automating repetitive tasks, such as cross-referencing data and identifying patterns. Automation reduces human error, speeds up turnaround times, and lowers costs, making background checks more efficient for both businesses and clients.
Blockchain for Verification
Blockchain technology is being explored as a secure method to store and verify background check data. It offers a tamper-proof way to maintain records, reducing the risk of fraud and ensuring the authenticity of information. This could streamline the verification process for background checks, making it faster and more reliable in the future.
The background investigation industry is heavily regulated by laws such as the Fair Credit Reporting Act (FCRA) in the U.S. and General Data Protection Regulation (GDPR) in Europe. Companies must ensure that their background checks comply with these regulations, which govern how data is collected, stored, and used. Non-compliance can result in legal penalties, making it crucial for businesses to stay updated on regulatory changes.
Global Expansion
As businesses become more global, the need for international background checks has grown. Different countries have varying laws and standards for employment and privacy, which makes conducting background investigations across borders more complex. Background investigation firms now offer global screening services, ensuring compliance with local laws while providing comprehensive reports.
Fraud Detection and Prevention
One critical component of background checks is detecting fraud. Whether it’s falsified resumes, fake degrees, or undisclosed criminal records, background checks help prevent fraud in hiring and contracting. With the increasing sophistication of fraudsters, background investigation companies need to continually update their methods and technologies to catch fraudulent activity early.
Social Media Screening
Social media background checks are becoming more common as employers look to gain additional insights into a candidate’s character and behavior. While traditional checks focus on criminal and financial records, social media screenings provide a glimpse into a candidate’s public presence. However, companies need to navigate the ethical and legal implications of using this information in hiring decisions.
Vendor and Partner Screening
Beyond employees, many companies now conduct background checks on vendors, contractors, and business partners. This helps mitigate risks associated with third-party relationships, such as breaches of trust, data security issues, or conflicts of interest. Vendor screening is especially critical in sectors like finance, healthcare, and government, where data protection and trust are paramount.
Data Security and Privacy Concerns
With sensitive personal data being processed in background checks, data security is a top concern. Background investigation companies must implement strong cybersecurity measures to protect this information from breaches or misuse. This includes encrypting data, ensuring secure data transfer, and maintaining strict access controls to prevent unauthorized access.
Industry-Specific Checks
Different industries have unique background check requirements. For instance, healthcare, finance, and education sectors often require more stringent checks, such as verifying medical licenses, financial backgrounds, or working with vulnerable populations. As a result, specialized background investigation services cater to these sectors to ensure compliance with specific regulations and standards.
Continuous Screening
Some employers are moving towards continuous background checks, where employees are monitored throughout their employment for any changes in criminal, financial, or professional history. This ongoing monitoring helps businesses ensure they are aware of any risks that may arise after the initial hiring process.
Background Investigation Certifications
Professionals working in the background investigation industry can pursue certifications such as the National Association of Professional Background Screeners (NAPBS) certification, which provides credibility and demonstrates a commitment to industry standards.
Market trends and growth opportunities
With the increasing emphasis on risk mitigation and regulatory compliance, the demand for background investigation services is expected to continue growing.
Additionally, emerging sectors such as remote work and the gig economy present new opportunities for background investigation businesses to cater to evolving client needs.
Automation
While the need for background checks increased in COVID, the rise of AI soon followed, making the process much more efficient.
Background checks can be quite repetitive. With the help of automation, AI, and machine learning, it has become easy to perform accurate and faster background checks.
By automating repetitive tasks, analyzing extensive datasets, and uncovering patterns that might elude traditional methods, these technologies streamline the screening process, cut down turnaround times, and offer more nuanced insights into an individual’s background.
Blockchain
Blockchain-based verification is the bleeding edge in the background investigation industry. The use of blockchain technology is being investigated for securely storing background check information.
This could potentially minimize fraud risk and simplify the verification process for record authenticity.
Research and Planning
Conducting market research
Before launching your background investigation business, it’s crucial to conduct thorough market research to understand the competitive landscape, identify target demographics, and assess demand for your services.
This research will inform your business strategy and help you position your brand effectively in the market.
Types of Background Checks
Commercial Background Checks: The use of background checks for commercial purposes spans various industries like finance, healthcare, and retail. In this sector, businesses rely on background checks to assess the credibility and dependability of prospective employees.
Private Background Checks: In personal contexts, background checks are frequently utilized for reasons such as pre-marital screening or tenant verification. Individuals may conduct background checks for diverse purposes, such as confirming the background and qualifications of caregivers, tutors, or neighbors.
Creating a business plan for your background investigation business
A well-crafted business plan serves as a roadmap for your venture, outlining your business objectives, target market, marketing strategy, financial projections, and more.
It also helps you secure funding from investors or lenders and provides a framework for monitoring and evaluating your progress.
Business Operations Overview
Location: Detail where your background check business operates and any geographical advantages associated with it. For example, “it operates in [location], strategically positioned to cater to businesses and individual parties.”
Service Offerings: Outline your services. For instance:
- Home-based background check
- Confirmation of professional licenses
- Past employment verification
- Credit Checks
- Education Verification
- Reference Checks
,etc.
Target Audience: Determine your target audience so you can effectively design the right marketing strategies to target the right people.
Marketing Channels: Channels for reaching the audience involve:
- Online platforms like social media and search engines
- Partnerships with local businesses
- Direct marketing through printed materials and job fairs
Main Focus and Objective:
Outline the main focus and goals of your business and what you hope to achieve in a certain period of time. This will help your business move in the right direction and at the right pace.
Standard Operating Procedures (SOPs):
Staff must adhere to SOPs, including privacy, confidentiality, and other security regulations. Make sure there’s a standard procedure in place that doesn’t, in any way, go in an unethical or illegal direction.
Operational Hierarchy:
Define who’s in charge of what. Operations should be managed by designated personnel responsible for:
- Daily operations
- Customer service
- Marketing and partnerships
- Reporting structure: [Manager/Supervisor] reports to [Owner/CEO], overseeing all operations and strategic decisions.
Defining these aspects early ensures clarity and minimizes potential issues in the future, regardless of the business’s structure.
Licensing and Regulations
Operating a background investigation business requires compliance with various federal, state, and local laws governing privacy, data protection, and consumer rights.
Depending on your location and the nature of your services, you may need to obtain specific licenses or certifications to legally conduct background checks.
Consult a business formation service for help throughout the registration phase.
Register Your Business
Registering your business is the first step towards making sure you are operating within legal bounds.
For most states, contacting a Secretary of State’s office, a Business Bureau, or a Business Agency is enough to begin the process of registering your business.
Alternatively, you can ask your lawyer to take care of registering your business.
If a DBA license is required in your state, make sure you file for it as well.
Some businesses are required to check back with their state’s tax board or franchise tax board after registering. Check with the board to determine if you need to present an Initial Report.
Obtain an EIN
An employer identification number is a distinct identifier assigned to a business entity by the Internal Revenue Service. EINs serve the purpose of easily identifying businesses, particularly for tax reporting.
Comprising nine digits, the EIN follows the format XX-XXXXXXX. Businesses can apply for EINs directly through the IRS, typically receiving them immediately upon approval.
You can apply for an EIN once you’ve registered your background investigation business as a tax-paying entity.
Articles of Incorporation
You might need these, depending on the type of business.
Articles of incorporation refer to a collection of official documents submitted to a government entity to formally record the establishment of a corporation.
Typically, these articles include essential details such as the corporation’s name, physical address, designated agent for service of process, and specifications regarding the issuance of stock, including the amount and type.
These documents serve as the legal foundation for the creation of the corporation.
You can obtain these from the Department or Secretary of State. Visit your state’s official website to get more information about what you need.
Other Legal Compliances
A number of permits may be required before you can start your background investigation business. Depending on your state, these may include:
- Zoning permit: A zoning permit is a legal document that grants permission to construct or modify structures on a property in alignment with the established land use regulations. Zoning permits contribute to maintaining property value stability by ensuring adherence to zoning guidelines.
- Signage permit: Sign permits authorize the display of publicly visible information, including text, symbols, and images, aimed at promoting your business. These permits legally allow the placement of advertising materials such as signs.
- Compliance with the Fair Credit Reporting Act: The Consumer Credit Protection Act safeguards data gathered by consumer reporting agencies, including credit bureaus, medical information firms, and tenant screening services.
- License from the State Department of Justice: It is not applicable to all states. Check with your state department of justice if you need to obtain a license or register with them.
- Certificate of Occupancy: A certificate of occupancy is an official document provided by a local government agency or building department. It confirms that a building meets all relevant building codes and regulations, signifying that it is safe and suitable for occupancy.
- Compliance with the General Data Protection Regulation: The General Data Protection Regulation is considered the most stringent privacy and security legislation globally.
While originated and enacted by the European Union, it imposes responsibilities on organizations worldwide, provided they gather or target data concerning individuals within the EU.
Setting Up Your Background Investigation Business
Selecting the right legal structure for your background investigation business, such as a sole proprietorship, partnership, LLC, or corporation, has implications for liability, taxation, and management.
Consult with legal and financial professionals to determine the most suitable option for your needs.
Sole Proprietorship: A sole proprietorship is a business structure owned and operated by a single individual. While it’s the simplest form of business ownership, it provides the least financial and legal protection for the owner.
Partnership: A partnership is a business owned by two or more individuals, referred to as partners. Similar to sole proprietorships, partnerships benefit from flow-through taxation, where the business income is taxed only once as part of the owners’ personal incomes.
There are three kinds of partnerships: general partnerships (GP), limited partnerships (LP), and limited liability partnerships (LLP).
Limited Liability Company (LLC): Limited liability companies (LLCs) are highly versatile business entities, blending the features of partnerships and corporations. They offer the tax advantages of sole proprietorships and the liability protection of corporations.
Additionally, LLCs have the flexibility to select from various tax treatments.
Corporation: Corporations are independent legal entities formed by shareholders. By incorporating a business, owners are shielded from personal liability for the company’s debts or legal matters.
Articles of incorporation are required if you choose to register your business as a corporation.
Technology and Tools
Essential tools for background investigations
Investing in the right technology and tools is essential for conducting efficient and effective background investigations.
This may include access to online databases, background check software, surveillance equipment, and other investigative tools to gather and analyze information accurately.
Building robust custom software for your background investigation system and implementing cutting-edge technology such as AI and machine learning is a one-time investment that can save a lot of your resources in the future and provide accurate data.
Utilizing software and databases effectively
With advancements in technology, background investigators have access to a wealth of data sources and analytical tools to streamline their processes.
Leveraging these tools effectively can help you uncover valuable insights and produce comprehensive reports for your clients.
Keeping records that maintain their integrity and are readily available is important for any background investigation business. Other than all the legal procedures, getting the right software and technology will prove to be crucial before you start your background investigation business.
Building Your Team
Hiring skilled investigators
Building a team of skilled and experienced investigators is crucial to the success of your background investigation business.
Look for candidates with a background in law enforcement, private investigation, or related fields, and ensure they possess strong analytical, communication, and attention-to-detail skills.
Building teams is all about finding the right blend and balance of different skills. You can either choose to start small and train your employees or hire skilled personnel on a larger scale.
Training and development programs
Invest in ongoing training and development programs to keep your team abreast of the latest industry trends, technologies, and best practices.
Providing opportunities for professional growth not only enhances employee satisfaction but also ensures the quality and accuracy of your investigative services.
Ensure that workplace rules are being upheld in every department of your business. The background investigation business can be brutal because it concerns sensitive matters relating to privacy and security.
Do not compromise on complying with any regulations, and make sure every person onboard is well aware of the international standards and upholds confidentiality while accessing sensitive data.
Marketing and Branding
Developing a brand identity
Crafting a compelling brand identity that reflects your company’s values, expertise, and commitment to excellence is essential for standing out in a competitive market.
Define your unique selling propositions (USPs) and communicate them effectively through your branding elements, including your logo, website, and marketing materials.
Hire a branding company if you want to get a head start in your marketing space.
Effective marketing strategies for reaching potential clients
Identify your target audience and tailor your marketing efforts to reach them where they are most active.
This may include digital marketing channels such as search engine optimization (SEO), social media advertising, email marketing, and networking events within your industry.
Your marketing strategy will be defined by the services you offer and, ultimately, your target audience. It can be costly to market a business, but if done right, the investment is worth it.
Pricing Your Services
Determining competitive pricing
Setting the right pricing structure for your background investigation services requires careful consideration of factors such as market rates, the complexity of the investigation, and the value you provide to clients.
Research competitors’ pricing strategies and position your services competitively while ensuring profitability.
Different services will be priced differently. Keeping a realistic rate is important. Doing competitive research might be the first background investigation you need to do before you start your business.
Offering packages and discounts
Consider offering tiered pricing packages or discounts for bulk orders to incentivize clients and attract repeat business.
Clearly communicate the features and benefits of each package to help clients choose the option that best suits their needs and budget.
There has been a rise in the background investigation business. In the age of information, there are a lot of competitors your business needs to go up against. Offering something unique will be pivotal to success.
Financial Management
Budgeting and financial planning
Maintaining sound financial management practices is essential for the long-term success and sustainability of your background investigation business.
Develop a comprehensive budget that accounts for all expenses, including personnel, technology, marketing, and overhead costs.
Background investigation business is by no means a small business to start. And there aren’t a lot of corners to cut. Having good relationships with the right people can be a huge help.
Getting a place for your office is one expense. Renovation, modeling, and other utility expenses add up.
Getting licenses and permits costs differently in different states. You can expect to pay up to $1000 for them. Hiring a lawyer and other legal fees may add up to that.
Investing in technology, marketing, and systems might be the biggest expense. Depending on your choices, starting a background investigation business may cost as much as $100,000 or more.
Managing cash flow and expenses
Monitor your cash flow closely and implement strategies to manage expenses and maintain sufficient liquidity.
This may include negotiating favorable terms with suppliers, invoicing clients promptly, and securing lines of credit or business loans as needed to bridge cash flow gaps.
To start, you might need to find investors. Look for angel investment networks, crowdfunding, lines of credit, or business loans to start your background investigation business.
Get a Business Bank Account
Starting your background investigation business will require a hefty sum of funds. You should make sure you are managing your finances effectively with a business bank account.
Before opening a business bank account, ensure you have your Employer Identification Number (EIN) and business license to demonstrate your legitimate business status.
Selecting the appropriate bank and account type is crucial. Be sure to understand the process thoroughly before proceeding.
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Networking and Collaboration
Forge strategic partnerships with complementary businesses, such as law firms, HR consulting firms, and security companies, to expand your referral network and access new client opportunities.
Collaborating with trusted partners enhances your credibility and strengthens your position in the market.
Make sure you obtain reliable information from your sources that complies with all the legal requirements and standards.
Attend industry conferences, trade shows, and networking events to connect with fellow professionals and stay at the forefront of industry trends and developments.
Building relationships with industry influencers and thought leaders can open doors to new opportunities and collaborations.
FAQs
1. How much does it cost to start a background investigation business?
The cost of starting a background investigation business can vary depending on factors such as location, equipment, licensing fees, and marketing expenses.
On average, entrepreneurs can expect to invest several thousand dollars to get their business up and running.
2. Do I need prior experience in investigations to start a background investigation business?
While prior experience in investigations or related fields can be beneficial, it’s not always necessary to start a background investigation business.
With the right training, resources, and dedication to learning, individuals from diverse backgrounds can enter the industry and build successful businesses.
3. How long does it take to conduct a background investigation?
The time required to conduct a background investigation can vary depending on factors such as the scope of the inquiry, the availability of information, and the complexity of the case.
Some background checks can be completed within a few days, while others may take several weeks or longer to gather comprehensive data.
4. What types of clients typically hire background investigation services?
Background investigation services are sought after by a diverse range of clients, including businesses, employers, landlords, legal professionals, and individuals.
These clients may require background checks for purposes such as employment screening, tenant screening, due diligence, and legal proceedings.
5. How can I differentiate my background investigation business from competitors?
To differentiate your background investigation business from competitors, focus on providing exceptional service, emphasizing accuracy, thoroughness, and client satisfaction.
Develop a strong brand identity, tailor your services to meet specific client needs, and leverage technology to enhance efficiency and reliability.
