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Written by: Esther Strauss
Esther is a business strategist with over 20 years of experience as an entrepreneur, executive, educator, and management advisor.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on October 14, 2021
Updated on April 25, 2024
Investment range
$2,000 - $10,000
Revenue potential
$55,000 - $840,000 p.a.
Time to build
0 - 3 months
Profit potential
$45,000 - $295,000 p.a.
Industry trend
Growing
Commitment
Flexible
These days, nearly every US company performs a background check on every serious candidate for every job opening they have. That’s a lot of background checks! And this doesn’t include other types of background checks, such as to verify employment or for prospective romantic partners.
This is why the background checks industry has been growing steadily for years, and why that growth is expected to continue in the years ahead. Now’s a great time to start your background check business, help ensure greater security, and grab your share of a growing market. You can run it from home on your time, yet still generate a steady income.
Of course, to succeed you’ll need a bit of business savvy. Lucky for you, this step-by-step guide lays out all you need to know to develop and launch your business and start checking your way to success.
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Although a background check business is easy to set up and run, it won’t be for everyone. Before starting a new business you want to be sure that the day-to-day work and the industry suit your circumstances.
To help you decide if this business is right for you, we’ve put together a list of pros and cons for starting a background check business:
In 2021, the background screening industry was worth $2.8 billion, following years of steady growth due to increased demand from several sources.
Even with all the recent technological advancements, nearly all employers (96%) hire outside firms to do background checks on potential employees. The industry is also witnessing increasing demand for background checks for other purposes, such as for a new tenant or a nanny hire.
As a result, the industry expects dramatic growth in the years ahead.
Trends in the background check services industry include:
Challenges in the background check services industry include:
The cost of setting up a background check business varies depending on the model you choose. A home-based business can be launched for as little as $2,000, while launching with an office will require about $10,000.
In both cases, the majority of the start-up funding will be used to buy equipment, including office furniture and specialist computer software. Marketing, including a website, will also make up a sizable proportion of the initial budget, as will general business costs such as insurance, licensing, and permits.
If you need to learn how to do background checks, online platform Udemy offers a background check bootcamp for $130, while ESR Check offers a more complete course load.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Licenses and permits | $100 - $200 | $150 |
| Insurance | $100 - $300 | $200 |
| Marketing and advertising | $750 - $2,500 | $1,625 |
| Website | $400 - $3,000 | $1,700 |
| Software | $100 - $1,000 | $550 |
| Office rent | $0 - $2,000 | $1,000 |
| Office equipment | $550 - $1,000 | $775 |
| Total | $2,000 - $10,000 | $6,000 |
The industry’s revenue per business and revenue per employee benchmarks are as follows:
Given these figures, we can forecast the revenue potential of your background check business as follows.
In the first year or two, if you’re a solopreneur working from home you should aim for 50% of the industry’s per employee benchmark, which would give you about $55,000 in annual revenue. As a home-based business, your operating expenses should remain low, enabling you to achieve an 80% profit margin. In this scenario, your profit is about $45,000 per year.
As you build a reputation, you will want to move the business to an office and hire full-time workers, reducing your margin to 35%. But with 10 employees, you could expect to achieve 75% of the industry’s per employee benchmark, giving you annual revenue of nearly $840,000 and nearly $295,000 in profit.
While the barriers to entry for a background check business are low, there are some.
The services offered by your background check business will be industry standards, leaving no room for innovation or creativity. This makes it practically impossible to differentiate yourself from your competitors.
It also means there is no real cost to the customer to switch from one business to another when requiring background check services, making it more difficult to build up a loyal customer base.
Now that you know what’s involved in starting a background check business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Traditionally, background check businesses have been local in their geographical reach, catering to a local community. As the world moves increasingly online, those geographical borders are being broken down, offering a wider market to entrepreneurs who can find an untapped niche or differentiate their offering in some way.
But whether your offering is online or local, market research is still an important step in setting up your new background check business. Research background check firms in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a background check company that also offers real-time criminal monitoring.
You might consider targeting a niche market by specializing in a certain aspect of your industry, or you could offer additional services like a psychological screening.
This could jumpstart your word-of-mouth marketing and attract clients right away.
Background checks are conducted for a wide range of reasons nowadays, although employment checks are still the most common. To run a background check, you’ll search for potential criminal records and credit history, as well as verify professional licenses, certifications, academic education, and the work history of candidates.
You could also offer a childcare background check, a tenant background check, a franchise background check, or a romantic partner background check. You could also offer a social media screening to your background checks for an added fee.
The price of a background check service varies depending on the check performed and the steps required, but for a relatively thorough, national-level background check you should be able to charge $100. You could also offer more local, state-focused background checks for a lower price, maybe $40.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your target market will be a variety of businesses, big and small, and everything in between. You can find them on LinkedIn, Google, and Yelp, and you should look for companies that hire frequently.
In the early stages, you might want to work from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
Discover over 320 unique background check business name ideas here. If you want your business name to include specific keywords, you can also use our background check business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to background checks.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your background check business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a background check business.
Starting a background check business requires obtaining a number of licenses and permits from local, state, and federal governments. While there is no requirement for a professional license or permit to run a background screening business, you may want to consider getting accredited by the Professional Background Screening Association.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your background check business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software such as GoodHire, PeopleG2, and IntelliCorp to verify identities, manage applicant checks, design custom screening packages, track applicants, and more.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your background checks meet their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your background check business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a background check business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in security for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in background screening. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
You may not need to hire any employees if you are starting out as a solopreneur, but as your business grows, you will need to recruit employees for various roles. Potential hires for a background check business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Congratulations! You’ve done your entrepreneurial homework. It’s time to get out there and launch your new background check business, as there are more than 11 million job openings across the country. That’s a lot of background checks and a tremendous growth opportunity. It’s important to keep yourself updated with the latest technology to stay on par with the competition.
There will be roadblocks along the way, but you can go back to this step-by-step guide to figure out how to hurdle any obstacles. With hard work and the right technology, you should be able to build your background check empire quickly.
The background check business can be highly profitable. You don’t need to purchase raw material or incur other costs to provide the service. As a result, the gross margin is 100%. The overhead expenses can be controlled, including rent and employee wages. A medium sized business can expect to make 25%-35% in net margin while the net margin of a home-based business could be as high as 80%.
Businesses look for a number of background checks to make sure they are hiring a clean candidate. According to a research report from HireRight, about 84% of organizations conduct criminal or other public record checks, followed by previous employment and reference checks (73%) and identity verification (66%).
To ensure accuracy and reliability in a background check, utilize reputable sources and cross-reference information from multiple sources. Consider using professional background check services and verify the identity of the individual being screened. Document the sources, dates, and verification steps taken during the process.
To protect privacy and confidentiality, obtain explicit consent from individuals before conducting background checks. Handle personal information securely, adhere to data protection laws and regulations, and only share relevant information with authorized personnel on a need-to-know basis.
Utilize a variety of sources to gather information. This can include criminal records checks from law enforcement agencies, employment and education verification from relevant institutions, reference checks with previous employers or personal contacts, credit history reports from credit bureaus (if applicable and legally permissible), and professional licensing and certification checks.
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