Start a private investigation firm by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your private investigation firm. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a private investigation firm?
Most private detective businesses effectively start out of the home, meaning that the bulk of the costs of opening the business rests with the equipment. For instance, many investigators are able to start their business for less than $3,000. This includes the cost of a laptop ($700 or less), video camera and covert cameras ($350 or less), and various equipment ($150 or less for a couple of memory cards, an external hard drive, and a tripod and monopod for cameras). It should be $1400 or less to acquire your business and agency licenses as well as insurance. Finally, it should be $500 or less to tint your vehicle windows, build a website yourself (using online templates if necessary), and purchasing various office supplies.
What are the ongoing expenses for a private investigation firm?
The beauty of a private detective business that you run out of your own home is that your ongoing expenses are low. For instance, you may continue traditional advertising each month (probably $200 or less due to the increasing significance of online marketing). Otherwise, your office space and utilities are built into your standard rent, and various job-related expenses such as travel and accommodations are things that you bill your clients for. This means that the payout for most jobs, minus those extra expenses you bill them for, is pure profit.
Who is the target market?
Generally, the best clients are those who want information on a spouse they think is cheating. These cases may be emotionally charged, but the blunt truth is that such cases are the bread-and-butter for many private detectives, with things like fraud investigations being more rare.
How does a private investigation firm make money?
Generally, a private detective makes money by charging clients an hourly fee for various services. How much you charge will vary based on the services.
How much can you charge customers?
Exactly how much you can charge clients varies wildly. For instance, a standard hour of investigative work should typically cost anywhere between $50 and $100. You may also charge expenses such as travel and hotels (when necessary), and you should consider charging per picture (say, $5 to $10) or charging a flat fee for pictures (typically between $30 and $50). And, of course, you can (and should) charge separately for various services such as background checks (up to $200), driving record checks (up to $75), and GPS device tracking (a minimum of $50 a day).
How much profit can a private investigation firm make?
Because of the nature of this job, the exact amount of profit that you make is determined by how many clients you take on. The Bureau of Labor and Statistics reports that the median salary for this job is just over $45,500, whereas the top ten percent of this field make more than $85,000. While that may seem low compared to certain other fields, the extremely low cost of both starting and maintaining this business means that you potentially deal with almost no overhead.
How can you make your business more profitable?
Shamelessly put your logo on cases of water, boxes of donuts, and supplies like t-shirts and mousepads. Generously give these out to current and potential customers so that they are regularly reminded of you and your services. At your discretion, take on cases for reduced cost or even free of charge in order to build up your publicity and public goodwill.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your private investigation firm is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
In most states, it is necessary to obtain a Private Detective Agency License to conduct business that provides private detective services for compensation. Requirements for obtaining this license typically include being a licensed private detective or having a certain degree of professional investigative experience. There will be a license fee and licenses must be periodically renewed. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
In addition, certain local licensing or regulatory requirements may apply.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
To avoid liability and maximize transparency, a services contract between the Agency and the client is advisable. This contract outlines the agreed upon responsibilities of the Agency as well as the degree of compensation expected from the client. Here is an example services agreement.
Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your private investigation business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a private investigation firm
At the bare minimum, your detective business should have a custom website that provides customers with a breakdown of services, pricing, and contact information. Creating a social media presence for yourself is basically free and provides a great way for people to learn more about your business and discreetly message you. As your budget allows, consider advertising in city newspapers and radio stations, as these forms of media are still favored by some of your older potential clients.
How to keep customers coming back
Keeping regular contact with local attorneys will help you find regular work, as will speaking at any events catering to attorneys. Don't forget to ask for attorney referrals and to make sure your web page is engaging and professional.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Private Investigation Firm In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
This business is ideal for highly adaptable self-starters. This is because the work will vary by location, hours, and type, and most of it will be conducted on your own.
What happens during a typical day at a private investigation firm?
Being a private detective is one of the jobs where your daily activities may be completely different from day-to-day. Some of the representative duties include going undercover at various businesses, writing case summaries and reports, reviewing security videos and transaction records, and searching various public and records and databases. You may be called upon to testify about some of your findings, especially in cases of fraud or other criminal activity.
What are some skills and experiences that will help you build a successful private investigation firm?
The exact requirements of the license you will require vary by state. However, experience in military or law enforcement work can be a big help in getting started. Similarly, experience working as a detective for a law firm or other agency can be invaluable when you are starting out on your own. Most states do not have an educational requirement to become a detective, but a degree in Criminal Justice or a related field may confer many of the necessary skills you will need. Finally, a pre-existing license for a concealed weapon (if your work makes a firearm necessary) will ultimately save you time.
What is the growth potential for a private investigation firm?
The growth potential of this business is slow but steady, with the Bureau of Labor and Statistics predicting a five percent growth in jobs in this field between 2014 and 2024. If you are knowledgeable about hacking and cybercrime, your business may flourish even more as this kind of crime becomes even more of a prime concern.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a private investigation firm?
The best way to jumpstart your business is to go ahead and do all of the personal training and prep you need. This includes self-defense training, firearms training, concealed carry licensing, and any formal or informal legal and financial training you require. You may also consider specializing in a niche service, which will help differentiate your business from others and allow you to concentrate on a specialty that you are already good at.
How and when to build a team
Most detective agencies start out with just one investigator. Over time, however, you may have more cases than you can reasonably work or simply have time conflicts regarding some of your potential clients. At that point, you should consider taking on a partner. You may want to hire a larger staff, but this will eventually necessitate the down payments and ongoing rent for office space, which will seriously impact your monthly earnings.