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.

Related: How to write a business plan

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.

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the 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.

When deciding on which business entity is best for a private detective agency, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: 3 steps to forming your LLC
 

You need a location that is extremely convenient for customers, but if you don’t have a need to meet clients in an office setting, you can also run your business from home.

Related: Choosing a business location

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 private investigator 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 a PI agency such as a local business license, sales tax permit, and an Employer Identification Number.

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

Fortunately, the cost to start a private investigation agency 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

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.

A private investigation business will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a new private investigation business include social media marketing and online advertising.

Having a good relationship with attorneys and insurance companies is a great way to get referrals to investigate suspicious claims. As the business establishes a good reputation, a large portion of new business from client referrals.

Related: Low-cost ideas to market a new business

There are some risks involved with owning a private investigation business since you will likely be in the middle of disputes and need to be mindful of legal requirements. As such, a private investigation business should consider several types of insurance coverage. A few of the more common types of insurance include:

– 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.

The cost of insurance policies for a private investigation business will vary based on a number of factors. 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

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

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 the accounting for your business