A business plan is an invaluable tool for any background check business, as it allows the owner to create an effective roadmap of the company’s operations. A good plan will have the business owner research the industry, conduct market research, decide which services to provide, marketing strategies, pricing, the investment needed, and more.

Related: How to write a business plan

Naming a background check business is an important and challenging task since it is the first impression potential clients will get of your business. Your name should communicate both your purpose and professionalism. After deciding on keywords that clearly explain what kind of services you provide, consider adding a pun or play on words to make your name stand out and leave a memorable impression.

Once a list of business names has been narrowed down, it’s important to first check that the name is available to use and research available website names.

Related: Tips on naming a business

A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures 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 background check business, 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 to minimize liability risk 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 that 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: Guide to forming your LLC
 

Location may not be an important factor for your business as many operate out of the owner’s home. For businesses wanting a more physical local presence or will have staff, finding the right office space is important.

If you are just starting out and the cost and justification of a permanent space isn’t necessary, you can rent part-time space through shared office space, coworking space, or incubator program.

In order to legally set up a background check business, there are certain professional licenses that may be needed.

It’s important to know the regulations of employment background checks. At the federal level, there is the Fair Credit Reporting Act (FCRA), which is enforced by the Federal Trade Commission (FTC) and the Equal Employment Opportunity Commission (EEOC). There may also be state laws to be aware of as well. By not following proper procedures, your business and your client’s businesses can be liable for fines and legal action.

In addition, there are general business registrations that may be needed. A few of these may include; a business license, tax permit, and Employer Identification Number (EIN).

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

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a background check business is another.  Fortunately, the cost to start a new background check business is relatively low; however, funding to start a business can be difficult.  Banks are typically going to want the borrower 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 small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Having an effective marketing strategy can help your new background check business gain visibility and bring in new clients. A successful strategy should focus on establishing trust and expertise within the field by emphasizing the importance of accuracy, reliability, and privacy.

Developing relationships with community partners, such as law enforcement and academic institutions, can boost credibility with potential customers. Additionally reaching to prospective clients with direct mail, cold calling, setting up a booth at job fairs, and networking with employers and staffing agencies, are all effective strategies to let potential customers know about your service.

Additionally, investing in paid advertising on social media or job sites will help build brand awareness quickly and effectively reach people who are already interested in background checks.

Related: Low-cost ideas to market a new business

A background check business requires extensive knowledge of the laws and regulations that govern it and as mistakes can be made, it is important to secure reliable and adequate insurance coverage to ensure protection.

Errors & Omissions Insurance is an important type of insurance policy for a background check business. Additionally, General Liability Insurance can provide financial protection if a customer claims they experienced reputational harm due to a results report. Other forms of insurance such as Data Breach Insurance, Cyber Liability Insurance, and Worker’s Compensation Insurance may also be necessary, depending on the business’s operations and services provided.

Related: Types of insurance your business may need