Esther is a business strategist with over 20 years of experience as an entrepreneur, executive, educator, and management advisor.
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
$55,000 - $840,000 p.a.
$45,000 - $295,000 p.a.
Here is what you will need when opening a background check business:
Interactive Checklist at your fingertips—begin your background check business today!
You May Also Wonder:
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.
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:
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.
Trends
Challenges
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 |
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.
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.
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.
If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
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 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.
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 for 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 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.
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:
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, 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.
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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.
Here are the key components of a business plan:
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 that 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.
