By Kelly Riddle
A Texas investigator and successful entrepreneur outlines a step-by-step process for how to conceive, name, register, and structure your own investigative firm — and set yourself up for success.
When I opened my business 30 years ago, I was a private investigator who happened to be the owner of a new PI agency. I can now say that I’m a businessman who happens to be a private investigator.
I grew up wanting to be a police officer, then became one — only to find out that wasn’t where God would have me. I left law enforcement and started doing Special Investigative Unit (SIU) work for an insurance company. Two years later, I left to head up insurance investigations for an international investigation company. When the company went up for sale, the time seemed right for me to start my own PI business.
I hadn’t planned to become an entrepreneur or an author. Like most people, I’d become dependent on the security of a paycheck. That security is the adversary of an entrepreneur. Unless you’re willing to take a risk, you’ll never reap the reward.
I started Kelmar Global in 1989, at the dawn of the personal computer, but before the era of good databases. Government agencies were just beginning to compile information, so I created and sold a searchable index for private investigators. Business was exciting because information was multiplying, and there was real potential for anyone willing to put forth the effort.
Then came the hurdles. As the business thrived and grew, I had tough decisions to make about how much time to spend investigating versus how much to spend running the business. I fought to stay in the field, hands on and micromanaging because “no one can do it the way I want it done.” At some point, a good manager learns to delegate and oversee.
With these changes came financial challenges. When I stopped doing day-to-day field work and became a true case manager, I had to hire someone to take my caseload. The profit margins initially got thinner, and we had to bring in more work to compensate for this overhead. But we came out the other side.
I had help along the way, so now I’m offering you the benefit of my experience, as you prepare for your journey into the business world. The goal of this article, and of my book (Things They Didn’t Tell You About Starting a PI Business) is to assist those who truly have a desire to succeed.
First Steps:
What’s in a name?
There’s a natural part of the human psyche that wants to name a business after ourselves. After all, it’s a grand accomplishment. Why shouldn’t it bear your name, and proudly? I have the perfect detective last name: Riddle. The marketing I could have done with that name! But naming your company after yourself may not be the best path in the long term.
Consider your end game: Retirement. What does that look like? Do you plan to shutter the business or sell it? Naming your business after yourself might make it less attractive to buyers, as the brand is tied to you.
My business, Kelmar Global, sounds reassuringly corporate. But in fact, my partner Mark and I did name it after ourselves — in a sneaky way. After considering all the obvious choices like “Texas Investigations,” we combined the first three letters of our first names and coined the word “Kelmar.”
A catchy name is great, but it can backfire. If the name is too cute, it can seem sleazy, clichéd, or downright silly. Again, imagine an attorney or CEO reviewing your website, brochure, name, and overall brand. Would the name be reassuring to that audience? Which brings to mind the next question:
Who is your market?
Many investigators who come from law enforcement seek work from defense attorneys or court-appointed cases. Others go after the insurance market and investigate fraud or fake claims.
This was our market for the first 3-4 years until I discovered the corporate world. This is where the real money is made. A solid domestic case might pay you $10,000 or more if you’re lucky, but domestic clients aren’t usually repeat customers.
Corporate clients are, and they pay very well.
Anyway, these are the initial questions you’ll have to answer before you decide on a name and hang a shingle.
Next Steps:
1. Pick a name you want to use.
Doing Business As, commonly called a dba, will be needed as a minimum when setting up your company. These are obtained at your local courthouse through the County Clerk’s office. The cost usually ranges between $15 -$50. A bank will not open a commercial bank account without at least a dba on file.
These are often good for 5 – 10 years before having to renew the certificate.
2. Make sure it’s available.
The Secretary of State’s Office in each state is where you’ll check to see if your chosen company name is available. If not, you’ll have to change the name, at least slightly. Then you’ll file and reserve the name for your corporation.
3. Decide on a structure for your business.
The next question is what legal structure you’ll choose for your company. The Small Business Administration site offers a good overview of the different business structures, which include sole proprietorships, partnerships, LLCs, and various types of corporations. The structure you choose determines your level of legal liability and the taxes you pay, among other things.
In this article, we’ll focus on the the pros and cons of Limited Liability Companies (LLCs), as well as two popular types of corporations: an S corporation (S corp) and a C corporation (C corp). No matter how you choose to structure your company, there are certain benefits you can expect — like being shielded from personal liability, as well as increased credibility with customers.
*Disclaimer: I am not an attorney or accountant, and I am not giving legal or financial advice. You should consult a CPA and attorney to determine which structure is best for your particular situation.
LLC vs. Corporation: What’s the real story?
All business structures are not created equal. When deciding whether a corporation or an LLC, is the best choice for your business, consider your short- and long-term goals and which structure will set you up to grow and thrive.
Characteristics of an LLC:
LLCs protect business owners, also referred to as “members,” from being held personally liable for the actions of the company. Because an LLC can safeguard your personal assets if a lawsuit were to arise concerning your business, it’s a good choice for owners in higher-risk industries or owners with significant wealth to protect.
Additional benefits of an LLC include:
Flexibility in management – LLCs have a less formal management structure than corporations, where directors oversee the major business decisions and officers are responsible for the day-to-day running of the business.
Pass-through taxation – With pass-through taxation, taxes are not paid at the business level — LLC members are taxed as self-employed people, so income/loss would be reported on your personal tax return. LLC members may pay a lower tax rate than they would as a C corporation. But because they’ll have to pay the additional self-employment tax, it’s tough to say which structure will work best for a company.
Characteristics of Corporations
Corporations are separate legal entities, apart from their owners. They also protect their owners from legal liability, but the costs to incorporate may be higher than for an LLC, and there are stricter requirements for operations and record-keeping.
Many business owners consider taxation to be the key difference between S corporations and C corporations.
S corps – In a nutshell, an S corp is a “pass-through” tax entity, like the LLC. Owners avoid the “double tax” issue of C corps, but they share some of the same strict operating and filing requirements of a C corp.
C corps – In contrast, C corps are taxed as separate entities. They are also subject to “double taxation” if corporate profits are distributed to owners (shareholders) in the form of dividends. C corporations pay taxes on their profits first at the entity level, then owners pay taxes as individuals on profits received as dividends, resulting in the double tax.
LLC vs. Corporation: Other Key Differences
Besides taxation and management there are other differences worth highlighting:
Business losses – The “S corporation advantage” allows owners to use business losses — like those incurred during the startup phase — on their personal tax returns as deductions.
Self-employment taxes – An S corp can provide savings on self-employment or Social Security/Medicare taxes, and it allows owners to offset non-business income with losses from the business — unlike a C corp which is a completely separate tax entity.
Ownership restrictions – Neither the LLC nor the C corp has restrictions on the number of owners the business can have or who can be an owner. S corporations have several: They can have no more than 100 owners, and owners cannot be “non-resident aliens.” Additionally, S corps cannot be owned by C corps, LLCs, other S corporations, or non-qualified trusts.
Dividends and venture capitalists – C corps are often the preferred incorporation choice of growing businesses. Owners can hold different types of stock interests (including preferred and common stock), which allow for different levels of dividends. This is one reason why venture capitalists choose C corporations when they offer funding to a business: investors are attracted to the prospect of big dividends if the corporation makes a profit.
Earnings – C corps can retain and accumulate earnings (within reasonable limits) from year to year.
Sole Proprietorships
A sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. It is the simplest form of operating a business but is not recommended due to the lack of liability protection, compared to other legal business entities.
Once you choose a business name and a structure that works for you, there’s still lots to do. Depending on your state, you may need to register with the state comptroller or department of revenue, to get a sales tax number and begin paying sales taxes. You may also operate in a state that charges a state franchise tax. Another great joy. This is basically a tax based on the net worth or the capital held by the company and is charged for the privilege of doing business in the state.
If you’re planning to do business in other states, you may need to register your company in some or all of those states, depending on the specific states involved — each has its own rules for what constitutes doing business and whether registration is necessary.
No matter your state, these are the general steps you’ll follow:
- Check with your Secretary of State’s office to be sure the name you’ve chosen is available.
- Get an “Assumed Name/Doing Business As” certificate at the County Clerk’s office.
- Register your company with the Secretary of State’s office (regardless of what company structure you choose).
- Register your company with the State Comptroller or Department of Revenue.
- Register your company with the State Board of Licensing for Private Investigators in your state.
- Obtain liability insurance. It protects you and is a requirement of most state licensing boards.
- Get Worker’s Compensation insurance if your state requires it or if you have employees.
Final Thoughts
There are few things more satisfying than being successful in business. The prospect should both scare and excite you. At some point, you’ll be tried by fire. The biggest stumbling block is ourselves.
But if you can get your mind, attitude, work habits and ethics all coordinated, you’re off to the races. Make sure your family’s on board, pray a dedication prayer, and be ever aware that you are not alone.
Most of all, enjoy the process. Know that there are people out there like me who’ve gone before you and are happy to assist. Join your state PI association, where you’ll find mentors and answers to questions, while making great friends along the way!
About the author:
Kelly Riddle is the president of Kelmar Global Investigations and has more than 39 years of investigative experience, specializing in surveillance, insurance investigations, nursing home abuse, and computer investigations. Riddle is the author of ten books and a popular public speaker who frequently appears on local and national media. His prior law enforcement experience includes being a member of the SWAT team, an Emergency Medical Technician, evidence technician, and arson investigator. He is the founder and president of the PI Institute of Education, as well as the Association of Christian Investigators, with more than 1500 members worldwide.
