Business Overview

A background check business provides screening services that help employers, landlords, and organizations verify information about potential employees, tenants, or others. These services include reviewing criminal records, credit histories, employment histories, and other public records to confirm the accuracy of information provided by applicants. Background screening companies have become increasingly important as organizations aim to reduce hiring risks, maintain workplace safety, and comply with industry regulations.

These businesses serve multiple sectors, from large corporations conducting mass hiring to small property managers screening potential tenants. The screening process typically involves collecting information from various databases, court records, and other official sources. Many background check companies also help their clients comply with federal and state laws regarding using background check information in hiring decisions.

The background check industry continues evolving with technological advancements, allowing faster processing times and more accurate results. Modern background check businesses often use automated systems to gather and verify information, though human oversight remains necessary for quality control and accuracy verification.

Companies in this industry operate using different methods such as:

• Full-Service Provider: Offers comprehensive background screening packages, including criminal records, credit checks, employment verification, education verification, and reference checks. These companies typically work with large corporations and maintain direct relationships with data sources.
• Specialized Screening: Focuses on specific types of background checks such as criminal records or credit histories. These businesses often serve particular industries like financial services or property management.
• Online Self-Service Platform: Provides automated background check services through web-based platforms where clients can order reports directly. This setup usually serves small businesses and individual landlords.
• Wholesaler/Reseller: Partners with larger background check companies to offer their services to smaller clients, often adding their own branding and customer service layer.

Industry Statistics

The background check services industry operates under NAICS code 56161, providing screening services that help organizations manage risk and maintain compliance by verifying individual backgrounds.

Background Check Services Industry Size & Growth: The background check services industry has reached $4.5 billion in revenue. Over the past five years, the industry grew by 2.8% annually (IBISWorld). Future projections indicate continued growth of 9.9% annually through 2028, supported by increased hiring activities and stricter industry compliance requirements (The Business Research Company)

Number of Background Check Services: Currently, 1,099 background check service providers operate in the market. The industry includes three major companies that dominate the market: First Advantage Corporation, HireRight Holdings Corp, and Sterling Check Corp. First Advantage Corporation leads with $784 million in revenue, followed by HireRight Holdings at $759 million, and Sterling Check Corp with $628 million in revenue. (IBISWorld)

Typical Background Check Service Revenues: The average background check service provider generates approximately $4.1 million in annual revenue, but this figure varies significantly based on company size, location, and service offerings.

Background Check Services Average Profit Margin: Profit margins in this industry typically range from 10% to 12%, with top performers like HireRight Holdings achieving margins of 12.1%. However, profitability can vary based on operational efficiency and service mix.

How Much Does It Cost To Start a Background Check Service?

Starting a background check service typically requires between $40,000 and $100,000 in initial capital. The amount needed varies based on location, size of operation, and level of automation planned for the business.

Several significant expenses shape the initial investment needed:

Software and Technology: Background check software platforms and database access subscriptions can range from $15,000 to $40,000 for the first year. This includes setup fees, licensing costs, and platform customization to meet specific business needs.

Legal Requirements: Professional liability insurance, business insurance, and legal consultation fees for compliance documentation typically cost between $5,000 and $15,000. This includes drafting service agreements and ensuring compliance with Fair Credit Reporting Act (FCRA) regulations.

Office Setup: Physical office space, computers, printers, and basic office equipment generally cost between $8,000 and $20,000. This includes furniture, telecommunications systems, and security measures for handling sensitive information.

Marketing and Website: Creating a professional website, developing marketing materials, and initial advertising campaigns typically cost between $5,000 and $15,000. This includes branding, website development, and initial marketing efforts to attract clients.

Training and Certification: Staff training programs and industry certifications, including FCRA compliance training, can cost between $2,000 and $5,000 per employee. These ensure the proper handling of sensitive information and compliance with industry regulations.