How to Start a Private Investigation Business

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Quick Reference

Do you like to do research and hunt down clues?  Maybe you have law enforcement or security experience.   In either case, a private investigation business could be an opportunity for you to do something interesting and make a living.

Business Overview

A private investigation business offers services to clients that may include legal issues or issues of a personal or financial nature.  In legal cases, they may help to gather evidence, locate witnesses, or perform surveillance.  Some with technical knowledge may be more involved in digital investigation.

Industry Summary

According to IBIS World, the private investigation services industry size is $6 billion.  It has grown an average of .3% per year for the last five years.   According to Zippia, there are over 5700 licensed private investigators in the United States.

Industry Trends

The industry has become much more technical in nature, with more sophisticated surveillance equipment and digital investigation tools.   The number of private investigators is expected to grow over the next 10 years, particularly those with computer forensics skills.

Target Market

Your target market will be those involved in court cases, searching for missing persons, or who need other issues investigated.

Skills, Experience, and Education Useful in Running a Private Investigation Business

There are several specific skills that you will need to open a private investigation business.

  • Experience.  Experience working in a private investigation business is valuable, or law enforcement experience.
  • Education.  Training and licensing are required to be a private investigator.
  • Business knowledge and experience.  You will need to have at least some basic knowledge of marketing, finance/accounting, and human resources.
  • People skills. You’ll need to be able to build rapport with your customers so that you retain them as customers and keep them coming back.

Costs to Start a Private Investigation Business

Here are the typical costs you will face when you open a private investigation business.

  • Office lease (unless you work from home) $500 – $3,000 per month
  • Private investigation equipment such as a laptop, video camera, printer, tape recorder, etc. $3,000 – $10,000
  • Training and licensing $1,500
  • Initial marketing such as Facebook ads or search engine optimization for your website $500 -$1,000

Steps to Starting a Private Investigation Business

Step 1: Write your Business Plan

After coming up with the idea, the next step in starting your private investigation business should be to write a business plan.  The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be and what your ongoing expenses will be.

Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you to think through all the aspects of the business and then serves as a guide as you begin.

How to write a business plan
Free sample business plans

Step 2: Name the Business

Finding the perfect private investigation business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name.  Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.

Step 3: Form a Business Structure

A business structure refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include a sole proprietorship, partnership, corporation, and Limited Liability Company (LLC).  Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

RelatedComparison of Business Entities

Step 4: Select your Location

You need a location that is extremely convenient for customers, but you can also run your business from home.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

There are several regulations to become a private investigation agency, and each state has different licensing requirements. At a minimum, in most states to get a PI license, you must be 18 years of age or older, have a background check (a felony is typically not allowed in the background of a private detective), a certain number of years of investigative experience and/or a bachelor’s degree in criminal justice.

In addition, there will be general registrations for private investigation businesses such as a local business license, sales tax permit, and an Employer Identification Number.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Fortunately the cost to start a private investigation business is quite low, however, if funding is needed to start, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business.

Step 8: Get your Marketing Plan in Place

A private investigation business will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a private investigation business include social media marketing and online advertising. Developing a website can be a significant expense, but it can also give your private investigation business greater visibility online.

Attorneys and insurance companies are great sources to get referrals to investigate suspicious claims.

Related: Low-cost ideas to market a new business

Step 9: Get Insurance

A private investigation business needs several types of insurance for full coverage:

General liability insurance can help protect you from third-party claims of bodily injury and property damage.

Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.

Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.

Insurance policies will vary. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.

Related: Common types of insurance a business may need

Step 10: Hiring Employees

You may need employees to help you run your private investigation business.  Make sure that you select people with appropriate experience, training, and licensing.

In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your private investigation business is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

How Much Can You Potentially Make Owning a Private Investigation Business?

The amount you make will depend on the volume of business you are able to get.  Hourly rates are between $50 – $100 per hour.  If you have enough business to work 30 hours per week, at $75 per hour, you would make $117,000 per year.

Things to Consider Before Starting a Private Investigation Business

Running a private investigation business or any business will have its challenges.  You need to be prepared and make sure that you know what you’re getting into.

Marketing and acquiring customers will be your biggest challenge and an ongoing expense. Online marketing and search engine optimization will be your biggest source of customers, so you will need to have a budget for that.

You will face competition, so you need to offer a high-quality service.

There are some risks involved since you will likely be in the middle of disputes.  Also, you have to be very careful to stay within the law.

Talk to other business owners for tips on starting a business and do your homework to determine costs.  Research other private investigation businesses to see what they offer and what prices they charge.

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