All you need to know about Starting a Background Check Business

You may think you’ve found the right candidate, only to realize later they’ve just pretended. Remember the case of Mina Chang? On November 12, 2019, NBC News revealed that Chang had misrepresented her qualifications, achievements, and charity work before joining the United States Department of State.

Her false claims led to her resignation, highlighting the critical importance of thorough background checks.

Conducting background checks is essential for organizations to validate a candidate’s education, work experience, employment history, and criminal history. These checks enable employers to make informed hiring decisions, ensuring fairness and accuracy by uncovering any false information in a candidate’s profile.

Additionally, employee background checks reduce the risk of hiring individuals who lie about their background, thus protecting the reputation and integrity of the organization.

In this blog, we’ll guide you through the important steps of the background check process. Let’s get started.

Why are Business Background Checks so Important?

Background checks play a crucial role in ensuring the safety and integrity of a workplace. A study conducted by AccuSource in 2023 found that 46% of reference and credential verifications needed to be more consistent between the information provided by candidates and the findings of the screening process.

This underscores the necessity of conducting thorough background checks for candidates to:

• Verify Candidate’s Qualifications: Inspecting the education and credentials of applicants confirms whether they possess the necessary qualifications and experience for their roles. Hiring incompetent employees can lower an organization’s productivity and performance.
• Ensure a Safe Work Environment: Conducting pre-employment screenings helps identify whether a candidate prioritizes safety, reducing the likelihood of workplace incidents. Identifying individuals committed to safety contributes to maintaining a secure work environment.
• Reduce Liability Risks: By screening candidates, employers can mitigate the potential risk of facing legal liabilities for negligent hiring. Identifying red flags during the screening process helps avoid hiring individuals who may pose potential risks to the organization.
• Prevent Employee Theft and Fraud: Background checks reveal if a candidate has a criminal history, mainly related to theft or fraud. Identifying job candidates with past theft records allows employers to make fair hiring decisions and lower the risk of internal theft and fraud.

Types of Background Checks

Background checks vary depending on their scope and purpose. You can personalize them to meet the requirements of your potential clients and streamline your hiring process.

Here are the common types of background checks:

• Reference Checks: This involves contacting individuals listed by job seekers, including friends or former supervisors, to learn more about their professional abilities, conduct, and ethics.
• Criminal Checks: Criminal background checks involve searching criminal records. They provide relevant details about an individual’s criminal history and can be conducted by consumer reporting or government agencies.
• Education Verification: Education verification checks validate a candidate’s academic qualifications, such as courses, certifications, and achievements. These checks ensure the accuracy of the educational information provided by job seekers and help employers evaluate their qualifications.
• Credit Checks: Credit checks provide insights into the credit history of job applicants, including credit score, payment history, and debts. Employers use these checks to assess the financial reliability of individuals.
• Employment History Verification: Employment background checks verify the employment history of candidates. This includes information such as job titles, dates of employment, previous companies, and salary. It helps employers confirm the reliability and accuracy of a job seeker’s resume.

Important Steps for Starting a Background Check Business

Here is a step-by-step guide to starting a background check business: 

Market Research and Niche Selection: 

Conducting extensive research and market analysis is crucial before starting a background check business. This will help you determine the demand and target market for background check services in different locations.

Begin by evaluating key parameters such as employment rates, population, and business activities. Identify niches with a higher demand for background check services, which may include healthcare, property management, education, and government industries. Additionally, look for untouched markets or overlooked segments that you can target.

Next, study your competitors to understand the landscape and determine how to differentiate your business. Consider offering a unique value proposition, which could include quicker turnaround times, exceptional customer service, or affordable pricing. This approach will help you set your business apart and attract a loyal customer base.

Regulatory and Legal Considerations: 

Background check companies must pay close attention to legal matters and adhere to compliance standards. Since they handle confidential information, it’s imperative to work within legal boundaries and protect the privacy of job applicants.

Start by understanding the legal requirements and regulations that govern background checks at your jurisdictional, federal, state, and local levels. Consulting legal experts specializing in employment laws can help ensure full compliance with these regulations.

Also, ensure you obtain the necessary licenses or permits to start a background check business. Seeking support from local government bodies can help you complete processes such as registering your business, obtaining a business license, and acquiring domain-specific permits.

For example, the Fair Credit Reporting Act (FCRA) protects information collected by consumer reporting agencies. Individuals who do not have a purpose specified in the Act cannot access the information in consumer reports; also, violations can lead to adverse action workflows.

Additionally, Title VII of the Civil Rights Act of 1964 prevents employers from discriminating against candidates based on color, race, sex, religion, and national origin. Adhering to these legal standards ensures your background check business operates ethically and within the law.

Building Business Infrastructure:

This is the primary step in establishing a background check business. It involves creating a business plan, selecting a structure, registering for taxes, and much more. The key steps include:

Creating a comprehensive business plan: 

Your background check business plan should encompass your company’s mission, vision, services, target market, pricing structure, and marketing strategies. It serves as a roadmap, providing a clear understanding of your business.

Ensure that the plan is both detailed and realistic. For assistance, consider using tools like an AI business plan generator. These tools can help you organize your thoughts effectively and create a thorough business plan that covers all the essential elements.

Choose a business structure:

Decide on the appropriate structure for your background check business, as it is crucial in defining personal liability, taxes, and registration requirements. Here are some options to consider: 

• Sole proprietorship: All earnings belong to the owner (sole proprietor), who is also responsible for any losses, debts, or liabilities.
• Partnership: Similar to a sole proprietorship, but involves multiple individuals who share profits and losses collectively.
• Limited liability company (LLC): This type of company combines the features of sole proprietorships and partnerships. The owners have limited liability and are not personally accountable for the company’s debts.
• C Corporation: In this setup, the business operates as a separate legal entity, and owners are not responsible for company debts. Profits are distributed to owners through shareholder dividends.
• S Corp: An S-Corp can be either a corporation or an LLC that elects for S-Corp status for tax purposes. Profits are passed through shareholders, who pay taxes based on their business income.

Next, you need to register your business name, obtain a Tax Identification Number (TIN), and complete other legal formalities in accordance with legal and regulatory compliance.

Hiring professionals with relevant experience in data analysis and background checks, as well as solid communication skills, helps in this. Ensure you thoroughly vet them to prevent any issues later on. 

Business Strategy: 

Once you have established your business, the next step is to attract clients and establish brand authority. To do this, identify your target audience and understand their problems. Understand what challenges they are facing in the background check industry. Do they need help with high turnaround times or compliance issues?

By gaining insights into these pain points, you can customize your services to address them. Use an omnichannel approach to reach a broad audience through different online platforms and modes. Some of the best digital marketing strategies you can use include:

• Create a website: Websites serve as digital storefronts, offering businesses a platform to showcase their products, services, and brand identity to a global audience. Collaborating with a web development company can ensure the creation of a compelling website.
• Local SEO: Use local SEO strategies to target local areas you want to serve, enhancing visibility in search engine results. Add a call-to-action (CTA) on your website and Google My Business pages to encourage visitors to contact your business. 
• LinkedIn Ads: Reach out to potential clients on LinkedIn who might need a background check provider and are interested in your services.
• Partner with HR Platforms: Establish partnerships with HR software platforms to integrate your services and increase your reach within the HR community.
• Blogging: Start a blog where you can post articles on various topics related to the background check industry, providing valuable information and insights.
• Customer Support: Ensure people can easily reach your customer service representatives through live chat, phone, and email-based support to get answers to their queries. 
• Customer Reviews and Success Stories: Share testimonials and success stories from satisfied clients to demonstrate the effectiveness of your services.
• Content: Share content on social media platforms that highlights the importance of background checks, educates your audience, and raises awareness about your business. 

Financial Considerations:

Financial considerations are crucial to your background check business. They determine whether you can cover startup costs and sustain ongoing operations.

Many people use personal savings to fund startups, helping them avoid the burden of loan repayments and ensuring better cash flow. However, it’s advisable to set aside some money for unexpected costs. As your business grows, you can explore other funding options as well.

Some business owners secure loans from traditional banks. If banks consider the loan too risky, they might recommend applying for a Small Business Administration (SBA) loan guarantee or seeking financing from other financial firms. Alternatively, you can attract angel investors who can provide capital for your financial software development and overall business growth.

Analyze the available funding options and choose what aligns best with your needs and business plan.

Technology and Security:

You can leverage technology in your background check business to streamline operations. For example, investing in background check software solutions such as GoodHire, Checkr, and HireRight provides reliable features for collecting and analyzing data for report generation.

These solutions manage large volumes of background check data, minimize errors, and reduce turnaround times. Additionally, you can access background reports easily with these tools, minimizing the burden of administrative tasks.

Security is another primary concern since background check businesses handle the personal information of candidates. Implement privacy policies explaining how your business will use candidates’ information.

For example, the General Data Protection Regulation (GDPR) provides guidelines on how background check companies can collect and handle personal data.

To keep data safe, you can also employ security methods such as secure storage, encryption, audits, and patch management. These measures prevent breaches of confidentiality and maintain data integrity.

Frequently Asked Questions

What are the must-have skills to run a successful background check business?

Business owners must obtain accreditation from professional background screening organizations. This certification ensures you adhere to service standards, protect data, and comply with local and federal laws.

Other than this, good communication skills are essential for interacting with clients, understanding their requirements, and effectively assisting them. Other relevant skills include analytical abilities, technical competency, and sales and marketing expertise to offer background check services and promote them to potential customers.

What is the initial investment to start a background check business?

The background check services industry is highly competitive, and costs can vary based on your business model, location, target audience, and market competition. Some of the main costs include setting up a business structure, obtaining licenses, investing in infrastructure and technology, securing office space, and marketing. Additionally, you should account for potential unexpected costs to ensure business continuity.

What are the challenges that arise in the background check business?

Several challenges can arise in the background check business, including:

• Constantly changing laws and regulations related to privacy and employment practices.
• Ensuring the accuracy and reliability of the information obtained during the background check process.
• Meeting clients’ needs within quicker turnaround times can be challenging, making it essential to understand expectations in advance.

Conclusion

With careful attention to the above steps, you can lay a strong foundation for setting up a background check business. Strive to maintain accuracy, adhere to legal screening standards, and provide your clients with reliable employment verification.

Guest author: Shikha is a content marketing specialist with experience in creating compelling and effective content for SaaS businesses. With 5 years of experience, she has a proven track record of developing content strategies that resonate with target audiences, drive website traffic, and generate leads.