How to Start a Background Check Business (with Checklist)

Here is what you will need when opening a background check business:

1. Licenses and certifications — Your business needs to be compliant with privacy laws such as Fair Credit Reporting Act (FCRA). In addition, it’s important to become a Certified Background Screening Professional (CBSP) and gain more credibility. 
2. Access to public and private records — Set up agreements or subscriptions with data providers such as Sterling, HireRight, and Checkr for various data access such as driving or criminal records.
3. Online presence — Establish a website, invest in a booking (appointment) app, create a Yelp and Google Business profile, and encourage online reviews.
4. Cybersecurity — Invest in a robust cybersecurity system to protect sensitive information such as Social Security numbers, criminal records, and financial data.
5. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
6. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
7. Franchise — Here are some of the best gym franchises to choose from: USA Mobile Drug Testing (USAMDT), Signal 88 Security, and Minuteman Press.

Step 1: Decide if the Business Is Right for You

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.

Pros and Cons

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:

Background Check Industry Trends

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.

Industry Size and Growth

• Industry size and past growth — The US background check services market was valued at $4.6 billion in 2023, after growing 3% annually over the past five years.((https://www.ibisworld.com/industry-statistics/market-size/background-check-services-united-states/))
• Growth forecast — The global background screening industry is projected to grow 9.2% annually through 2028.((https://www.alliedmarketresearch.com/employment-screening-services-market))
• Number of businesses — There were 1,132 background check services businesses in the US in 2023.((https://www.ibisworld.com/industry-statistics/number-of-businesses/background-check-services-united-states/)) 
• Number of people employed — As of 2023. the industry employed more than 12,000 people.((https://www.ibisworld.com/industry-statistics/employment/background-check-services-united-states/))

Trends and Challenges

Trends

• Booming gig economy fueling demand for background checks
• Some companies offer additional services such as psychological screening
• Increase in court access monitoring

Challenges

• Errors in background checks that lead to lawsuits
• Regulations such as equal employment opportunity and fair credit reporting rules
• Fraud and misinformation by some job applicants’

How Much Does It Cost to Start a Background Check Business?

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, the online platform Udemy offers a background check bootcamp for $120, while ClearStar offers broader course resources. 

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

How Much Can You Earn From a Background Check Business?

The industry’s revenue per business and revenue per employee benchmarks are as follows:

• Revenue per business: $1,104,972
• Revenue per employee: $111,701
• Employees per business: 10

Given these figures, we can forecast the revenue potential of your background check business as follows. 

If you’re a solopreneur working from home, in the first year or two, 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. 

What Barriers to Entry Are There?

While the barriers to entry for a background check business are low, there are still 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.

Step 2: Hone Your Idea

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.

Why? Identify an Opportunity

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 offerings 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.

This could jumpstart your word-of-mouth marketing and attract clients right away.

What? Determine Services to Specialize In – Employment, Criminal, Franchise, or Childcare Checks

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 for your background checks for an added fee. 

How Much Should You Charge for the Background Check Service?

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 our profit margin calculator to determine your markup and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify Your Target 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. 

Where? Choose Your Business Premises

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:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Background Check Business Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “background check” or “security screening,” boosts SEO
• Name should allow for expansion, for example, “CheckPoint Solutions” over “Tenant Screening” or “Financial Background Checkers”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

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 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.

Step 4: Create a Background Check Business Plan

Here are the key components of a business plan:

• Executive summary — A concise overview of your business plan, summarizing key points and objectives to give readers a quick understanding of your business
• Business overview — Detailed information about your business, including its mission, vision, and the problem it aims to solve in the market
• Product and services — A clear description of products or services your business offers, highlighting their unique features and benefits
• Market analysis — An examination of the target market, including its size, demographics, and trends, to identify opportunities and potential challenges
• Competitive analysis — Evaluation of competitors in the market, analyzing their strengths, weaknesses, and positioning to determine how your business can stand out
• Sales and marketing — Strategies for promoting and selling your products or services, encompassing your target audience, pricing, distribution, and promotional activities
• Management team — Introduction of key members of your management team, highlighting their relevant skills and experiences
• Operations plan — Details on how the business will operate, covering key processes, suppliers, technology, and any necessary partnerships
• Financial plan — Projections of the financial aspects of your business, including startup costs, revenue forecasts, and a break-even analysis
• Appendix — Supplementary information that supports and adds depth to the main components of the business plan, such as additional charts, graphs, or detailed market research data

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.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose Where to Register Your Company

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 that it’s relatively easy to transfer your business to another state. 

Choose Your Business Structure

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:

• Sole proprietorship — The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General partnership — Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) — Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corporation — Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corporation — This refers to the tax classification of the business but is not a business entity. An S Corp can be either a corporation or an LLC, which just needs to elect this structure for tax status. In an S Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

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.

Step 6: Register for Taxes 

The final step before you’re able to pay taxes is getting an Employer Identification Number (EIN). You can file for your EIN online, or by mail/fax. Visit the IRS website to learn more. Keep in mind that, 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.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund Your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans — This is the most common method but getting approved requires a rock-solid business plan and a strong credit history.
• SBA-guaranteed loans — The Small Business Administration can act as a guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants — A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and family — Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding — Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal — Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best options, other than friends and family, for funding a background check business. 

Step 8: Apply for Background Check Business Licenses and Permits

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.

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.

Step 9: Open a Business Bank Account

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.

Step 10: Get Business Insurance

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:

• General liability — The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business property — Provides coverage for your equipment and supplies.
• Equipment breakdown insurance — Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation — Provides compensation to employees injured on the job.
• Property — Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto — Protection for your company-owned vehicle.
• Professional liability — Protects against claims from clients who say they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP) — This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential Software and Tools

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. 

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, FreshBooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences of filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop Your Website

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.

However, people are unlikely to find your website 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. 

Marketing

Here are some powerful marketing strategies for your future business:

• Local SEO — Implement specialized SEO strategies targeting the specific industries you serve to ensure visibility in relevant search results.
• Trust signals on the website — Display certifications, secure processes, and endorsements prominently to reassure clients of your credibility.
• Informative social content — Regularly share educational content on social media about the importance and compliance of background checks.
• Industry-specific blogging — Develop a blog that addresses common concerns and updates in the background checking sector, establishing your expertise.
• Collaboration with HR platforms — Partner with HR software platforms to integrate your services, expanding your client base.
• Client testimonials and case studies — Utilize testimonials and case studies to demonstrate the effectiveness and value of your services.
• LinkedIn advertising — Target professionals and businesses on LinkedIn who may require background-checking services.
• Service demonstrations — Offer free demonstrations to potential clients to showcase the depth and quality of your service.
• Advanced tech showcasing — Highlight advanced technology and proprietary systems used in your services to enhance accuracy and speed.
• Online webinars — Host webinars to discuss best practices and the evolving legal landscape in background checking.
• Interactive service portal — Provide an easy-to-use portal for clients to submit and manage their background check requests.
• Responsive customer support — Ensure your customer support is accessible and responsive to assist clients efficiently throughout the service process.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that set 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: 

• The fastest, most reliable background checks in town 
• Every kind of background check you could ever imagine, at great rates 
• From background check to onboarding, we do it all! 

Networking

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. 

Step 12: Build Your Team

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:

• Background check specialists
• Marketing lead 
• Sales executives
• General manager

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.

Step 13: Run a Background Check Business — Start Making Money!

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 millions of 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 refer to this step-by-step guide to figure out how to overcome them. With hard work and the right technology, you should be able to build your background check empire quickly. 

FAQs

Is a background check business profitable?

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%.

What do businesses look for in a background check?

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%).

How can I ensure the accuracy and reliability of the information obtained during a background check?

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.

How do I protect the privacy and confidentiality of the individuals being screened?

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.

What sources of information should I utilize when conducting background checks?

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.