How to Start a Private Investigation Business
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.
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.
According to IBIS World, the private investigation firms generates $6 billion annually. It has grown an average of .3% per year for the last five years. According to Zippia, there are over 5,700 licensed private investigators in the United States.
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.
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 especially valuable. Law enforcement experience and military training are also useful in this industry.
- Education. Training and licensing is 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.
Checklist for Starting a Private Investigation Business
Starting your own private investigation business can be a fulfilling and lucrative experience, but it’s important to make sure you’re fully prepared for the challenges ahead. By following this checklist, you can get your business off to a strong start
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.
Related: How to write a business plan
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 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
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 4: Select your Location
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
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 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.
Step 6: Find Financing
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.
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 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.
One important marketing task is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.
Step 9: Get Business Insurance
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.
Step 10: Hire 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.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost 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
How profitable is 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.
Are there grants to start a private investigation business?
It’s extremely rare to find a grant to start a private investigation business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a private investigation business?
The NAICS code for a private investigation business is 561611, which also includes bounty hunting services, fingerprint services, missing person tracing services, and more.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.