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How To Start A Private Investigation Business

How To Start A Private Investigation Business

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How To Start A Private Investigation Business

How To Start A Private Investigation Business

Have you ever thought about starting your own private investigation business? As a private investigator, you’ll have the exciting opportunity to conduct surveillance, perform background checks, investigate insurance claims, and more. Although private investigation seems glamorous on TV, starting your own real-life PI business takes careful planning and hard work.

Use this guide to learn the basics of the private investigation industry, steps to start, and answers to common questions.

Business Overview

A private investigation business involves conducting investigations on behalf of clients to uncover information, such as missing persons or fraud. Private investigators may work with businesses, attorneys, or private individuals and may specialize in various areas, such as surveillance or background checks. As a private investigator, you need to have more than just technical skills. You also need to possess marketing, financial, and management skills to run a successful business.

Industry Summary

The private investigation industry was valued at $5.2 billion in 2022, according to Fact.MR. The industry is expected to grow at an annual rate of 4.5% through 2032 to reach a value of $7.8 billion.

Major companies in this $6 billion industry include Pinkerton, Universal Investigation Services, and Corporate Intelligence Consulting. Most firms are small local businesses with fewer than 10 employees. Low startup costs contribute to the large number of small operations.

Steps To Start A Private Investigation Business

Step 1: Understand Regulations and Requirements

To begin your research, look into the licensing requirements for private investigators in your state. Most states have specific requirements for becoming licensed, such as completing a designated number of training hours and passing a background check. You can find information on state-specific licensing requirements by visiting the website of your state’s private investigation association or contacting your state’s licensing board.

Step 2: Research the Market

Once you have an understanding of the requirements to become a private investigator, you should research the market and examine the types of services that are in demand in your area. You can do this by conducting market research, such as surveying potential clients or analyzing competitors’ services and pricing. This will help you identify any gaps in the market and develop a unique selling proposition for your business.

The role of a private investigator is vast, and your research may lead you to consider specializing in a specific area of the industry, such as corporate investigations, insurance fraud, missing persons, or infidelity investigations. Focusing on a specific area can give you a competitive edge and help you build a reputation as an expert in that field. Being specialized can also help you stand out from the competition and provide a more tailored and efficient service to your clients, which can lead to a greater volume of work at higher rates than a generalist.

Step 3: Write a Business Plan

Starting any new business venture can be challenging, especially in a highly competitive industry such as private investigations. One crucial tool that can significantly impact a new business’s success is a business plan.

A business plan is not only a document lenders want if you are seeking funding, but it is also a roadmap that outlines a company’s goals and strategies for achieving those goals. In the plan, you will also list out all of the items needed to get started, which leads us to the next step.

Related: How to write a business plan

Step 4: Get Funding In Place

After identifying a viable market and crafting a solid business plan, the next critical step in starting your private investigation business is making sure you have the necessary funds in place.

The cost to start a private investigation business is relatively small compared to most business, and personal savings are usually enough. If not, outside funding sources will need to be considered. The most common sources of funding for private investigation businesses include lenders, friends and family, and microloans.

Lenders typically require a borrower to invest at least 15% of their personal funds towards the total cost of the project, have a good credit score, and have sufficient collateral. If the bank feels the loan is too risky, they can use an SBA loan guarantee.

Friends and family are another source of funding for private investigation businesses. However, it’s important to put agreements in writing to avoid any misunderstandings or conflicts down the road.

If the funding needs are low or credit isn’t available through a lender, microloans can be a viable option. Microloans are small business loans often offered by economic development organizations and some even provide business training in addition to funding.

Step 5: Register the Business

If you’re looking to start your own private investigation business, it’s important to take the necessary steps to register and legalize your business. However, the specific requirements for registering a private investigation business will vary depending on your location and state laws. Here are some general steps you may need to take:

Choose a business structure: You’ll first need to decide on a business structure for your private investigation business. The four main types of structures are sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).

  • Sole proprietorship: This is the easiest and least expensive structure to set up. It offers you complete control over your business. However, it also means you’re personally liable for business debts or lawsuits.
  • General partnership: Similar to a sole proprietorship but involves two or more people. All partners share in both the daily management and business debts.
  • Corporation: Provides liability protection but involves more complex regulations and tax requirements. You’re considered a separate entity from your business, reducing your personal risk.
  • Limited Liability Company (LLC): Combines the liability protection of a corporation with the tax benefits of a sole proprietorship or partnership.

Each structure has its own advantages and disadvantages, and the choice will depend on your individual needs and preferences. LLCs are a popular structure for private investigation businesses due to their liability protection and tax benefits.

Related: Comparison of business structures

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!

ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!

Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Obtain 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, work experience in law enforcement, and/or a bachelor’s degree in criminal justice.

A PI must also comply with state and federal privacy laws, such as the Fair Credit Reporting Act, when conducting investigations. Failing to comply with licensing requirements or privacy laws can result in substantial fines, penalties, or even the revocation of your license.

In addition to private investigator specific requirements, there will be general registrations for any business, such as a local business license, sales tax permit, and an Employer Identification Number. These vary depending on where the business is located.

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

Step 6: Set Up Operations

The next step after registering the business is to set up operations.

When it comes to setting up an office for a private investigation business, there are a few options. Some investigators choose to work from home to keep costs low, while others prefer to lease a physical space to meet with clients and store equipment. When leasing a space, it’s important to choose a location that is easily accessible to clients and has adequate security measures in place.

As for equipment, private investigators typically require a range of tools and technology to carry out their work effectively. This may include surveillance equipment, GPS trackers, computer software, and more. Depending on the services being provided, you will likely need access to databases that can provide information about people, companies, and public records.

Step 7: Create a Marketing Strategy

One of the significant challenges facing many private investigators when they start their business is finding clients. You may need to market your services aggressively and use different strategies to generate leads.

Word-of-mouth advertising can be a powerful tool. Building good relationships 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 comes from client referrals.

Additionally, you may want to consider creating a website, using social media platforms, and listing your services on online directories that specialize in investigator services.

Related: Low-cost ideas to market a new business

Step 8: Prepare to Launch!

We’ve gone over the major steps needed to start a private investigation company, but there are likely several things still needed. Everyone will have different needs, but here are some common final steps.

Business insurance: Obtaining appropriate insurance coverage is important to protect the business from potential legal or financial liabilities. Some common types of insurance for private investigation businesses include general liability insurance, errors and omissions insurance, and workers’ compensation insurance. We recommend getting at least three insurance quotes, including local insurance agents and online providers like Coverwallet or Hiscox to get the best coverage and price.

Setting up bookkeeping: Establishing a bookkeeping system is needed to track income and expenses, create financial statements, and prepare for tax season. This can be done through a bookkeeper or software like Wave Accounting (FREE) or Quickbooks.

Contracts: Depending on the specific services offered, private investigators should have contracts with clients. For example, a surveillance contract would outline the terms of the surveillance work being performed. Other contracts may include nondisclosure agreements or engagement letters.  RocketLawyer and Law Depot have free and inexpensive templates that may be helpful.

Opening a business bank account: This separate account will help keep business finances separate from personal expenses and simplify tax filing.

Joining industry associations: Being part of industry associations like the National Association of Legal Investigators, and the National Council of Investigation & Security Services can provide networking opportunities, access to educational resources, and industry recognition.

Greg’s Tip: A common mistake is thinking that being good at your job is enough to bring in clients. Without effective marketing, even the most competent PI business can fail to gain traction.

Greg's Business Tip

Common Questions When Starting A Private Investigation Business

How much does it cost to start a private investigation business?

Starting a private investigation firm can be a sizable investment, with initial costs ranging from $6,000 to $20,000, depending on a variety of factors. The costs can vary significantly based on location, the scale of your operation, and the type of services you plan to offer. Startup costs can include:

Location: Whether you’re working from a home office or leasing commercial space, the location can impact your costs significantly. Home-based businesses will have minimal overhead, but commercial spaces can require initial deposits that range from $1,000 to $5,000, depending on the area and the size of the space. Some locations may also require a security deposit or first and last month’s rent upfront.

Equipment: You’ll need professional-grade surveillance equipment, which can set you back around $3,000 to $5,000 for high-quality cameras, audio devices, and possibly even a vehicle equipped for surveillance.

Licenses and permits: Application fees for a private investigator license can vary by state but generally fall in the range of $50 to $300. Additional costs might include fingerprinting, background checks, and surety bonds, which could add another $200 to $500 to your initial expenses.

Training and certification: Though not always mandatory, specialized training and certifications can cost between $500 to $2,000 and can elevate your professional credibility.

Insurance: Initial insurance costs, such as liability and perhaps vehicle insurance, can range from $400 to $1,200 for your first month or quarter, depending on your coverage needs.

Marketing: Launching your business will require some form of marketing. A basic website setup could cost you around $500, business cards and brochures another $200, and maybe an initial run of online ads for about $300. So, you’re looking at approximately $1,000 for your initial marketing thrust.

Other costs: Software, office supplies, and possibly even legal fees for contract preparations could add an additional $1,000 to $2,000 to your startup costs.

How profitable is a private investigation business?

Profitability in the private investigation industry can vary widely based on factors such as location, niche, and scale of operations. A common formula for estimating profit is to subtract operating expenses from total revenue.

Revenue is primarily generated through client fees, which can range from $50 to $150 per hour depending on your expertise and services offered. Let’s consider a scenario where you charge $100 per hour and work 30 billable hours a week. In this case, your weekly revenue would be $3,000, and your monthly revenue would be approximately $12,000.

On the expenses side, you’ll have to consider costs like office rent, utilities, equipment maintenance, marketing, and insurance. Let’s ballpark these expenses at about $4,000 per month.

So, using the formula (Total Revenue – Operating Expenses = Profit), your profit would be $12,000 (revenue) – $4,000 (expenses) = $8,000 per month or $96,000 annually.

These are general figures; actual profits can be higher or lower based on the unique aspects of your business. But this gives you a rough idea of what you might expect to earn running a private investigation business.

What skills are helpful in running a private investigation business?

Running a private investigation business can require a diverse set of skills. Some of the most helpful skills include:

Analytical thinking: Private investigators must be able to analyze large amounts of information and data to draw conclusions and solve cases.

Attention to detail: Investigative work often involves paying close attention to small details that may be overlooked by others.

Communication skills: Private investigators need to communicate clearly and effectively with clients, witnesses, and other professionals.

Technology skills: The use of technology, including surveillance equipment and data analysis tools, is crucial in modern investigative work.

Problem-solving skills: Private investigators often encounter complex and challenging cases that require creative problem-solving techniques.

Time management: Investigative work often involves managing multiple cases and deadlines simultaneously, requiring strong time-management skills.

Discretion: Private investigators must be able to maintain confidentiality and handle sensitive information with discretion.

Physical fitness: Certain types of investigative work, such as surveillance, may require physical stamina and endurance.

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.

Related: What is a NAICS code and how to find yours


National Association of Legal Investigators

How To Start A Private Investigation Business

How To Start A Private Investigation Business

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