In This Article:
How to Start a Drug Testing Business
- By: Andrew Easler, Esq.
- Published: Dec, 6 2014
- Updated: Dec, 20 2022
What services can and should a new drug testing company offer? Choosing the right kind of drug testing services to offer the public is an individual choice. Your personal expertise, management skills, and financial capacity will help in making this decision. Take inventory of your knowledge, interests, talents, and resources. It’s important to remember that most companies who hire drug testing companies want a “one-stop-shop”.
Which drug testing services are in high demand?
In our opinion DOT Urine is the most common drug test, followed by DOT Alcohol, then Non-DOT Urine commonly called pre-employment drug testing, then oral/saliva, hair. Although DNA Paternity is not often associated with a drug testing business, it’s a great add-on that can offer great margins.
What are my chances for success? There are no guarantees, but studies have shown that careful planning and objective evaluation will increase your chances for a successful drug and alcohol testing business. The information in this book should help you prepare well.
How Much Money Can Drug Testing Business Make?
As the saying goes, you get out of it what you put into it, but not always. The amount of money a drug and alcohol testing business makes is highly dependent on the market you open it, the person who starts it, how hard they work, and how smart they are.
In our opinion, if you are focusing on your business full-time you will not have a hard time making money.
How much money does it really cost to start a drug testing company?
No one can answer that but you. It is up to you to develop a plan for your business, which determines the cost. However, in our option having about $20,000 for total start-up costs, including a few months’ worth of operating capital is a good rule of thumb[
How can I get the money to start a drug testing company?
There are numerous ways to finance a start-up drug and alcohol testing business, including but not limited to:
- Personal savings
- Loans from relatives or friends
- Credit cards (bootstrapping)
- Traditional loans, government loans, venture capital, etc.
Most government loans are in the form of guarantees through local banks. In most cases, a loan will require collateral and a convincing business plan which no one really likes to do.
Where do I get a government grant to start a drug testing company?
Government grants are rare and only available for limited, specific enterprises. Contact your local Small Business Development Center for more information or try the small business administration.
If you want to apply for a grant try doing an internet search for “Grant Writers”
Do I need to get licenses and permits to start a drug testing company?
Yes. You are most likely going to need licenses and/or permits regardless of size. Each town and city has different zoning laws. Before you lease an office or buy a building ask to check with the city to make sure you can collect specimens.
How many hours will I have to work at my drug testing company?
Typically, as a small business owner, you will be responsible for everything, from marketing to maintenance. Expect to spend long hours (perhaps ten to twelve hours per day) on the business for the first few years. Carefully consider your personal needs and those of your family before taking on this commitment.
Starting a Drug Testing Company from Scratch
Advantages: Starting your own drug and alcohol testing business from scratch can be very fulfilling. You have the freedom to be creative and innovative; you make all your own decisions. This can be your dream come true.
Disadvantages: There is a great deal of risk involved in starting a new drug and alcohol testing business. Many new businesses don’t succeed. You have to do everything yourself, from creating a business name to promote, and you must make all your own decisions. The buck stops here.
Buying an Established Drug & Alcohol Testing Company
When you buy an existing drug testing business, the infrastructure is in place, a client base is established, and there is already name recognition. Past records let you know what you are getting and make it easier to finance. This option can be less risky than starting a new business.
An existing drug testing business may be covering hidden problems (e.g., financial difficulties, bad reputation). Your business reputation is tied to that of the previous management, and it may be difficult to establish a new identity. Occasionally, the previous owner may impact your business by starting a competitive operation.
Buying a drug testing franchise is a way to reduce risk and receive support from a large network. You know what you’re getting. The preliminary work has been done with an infrastructure well established, a product line in place, and the marketing strategy developed. The customer base may be set, sometimes with good name recognition. The franchisor usually provides management assistance and training and may offer financial support. The pooled resources of many franchisees allow strong promotional opportunities and group buying power.
A drug testing franchise offers less freedom than an independent business. There are lots of rules and procedures in place. The owner cannot change products and services. Initial franchise fees may be expensive. You need to take into consideration start-up and operational costs, as well as ongoing royalty and other payments to the franchisor. The reputation of one franchise is affected by that of others. Transfer of ownership may require the approval of the franchisor.
What does it take to start a drug testing business and make it a successful company?
So, what does it take to start a drug testing company? And, more importantly, how can you minimize your risk and increase your chances of success?
If you’re reading this then you have most likely decided that you want to start a drug testing business. This information is offered as a guide so that we can help you approach starting a business wisely and learn how to find more help when you need it. Each drug and alcohol testing market is different and it is up to you to learn the specific requirements before starting to collect specimens.
Being a small business owner, especially a new business owner is not for everybody. It takes risk, hard work, good decision-making, and luck. This guide will provide you with the information you need in order to make choices that are best for you (and we wish you the best of luck!).
It’s important to always ask yourself, “why do I want to start a drug testing company?” Going into business for you requires certain characteristics. Not everyone is suited to be a business owner. Take some time to think about your motivations, personality, and abilities.
Laying the Groundwork
There is a lot to do before you can open the doors to a new company. You need to develop a business plan, establish the business infrastructure, find out about licensing and other requirements and set up a system for recordkeeping. The time you spend on this part of the business start-up will be amply rewarded by fewer problems in the future.
You may feel overwhelmed by all the new concepts and many decisions that need to be made. This is a good time to get professional business help from one of the agencies that provide free or low-cost services to small businesses. Small business development centers, SCORE, your local chamber of commerce, and other organizations are there to help.
If you’re anything like us, you hate business plans. However, a business plan is your blueprint for success, a simple one-page plan will do, but if you can stomach doing the work it’s better to do a long-form business plan.
It sets down your goals for the business, assists in analyzing the feasibility of a new business, explores the expansion of an existing business, defines your customers and competitors, and points out your strengths and weaknesses. It also details your plans for the future.
Develop the business plan yourself rather than hiring someone else to do the work. After all, it’s your business.
In some areas, you may want to consult professionals for advice. Once the plan is developed, refer to it often. It should also be updated periodically, at least once a year.
Seek Expert Advice
There are a number of outside professionals that a new drug testing business will need. They are, but are not limited to:
An accountant may be consulted to set up a good bookkeeping system for your business. Inadequate recordkeeping is a principal contributor to the failures of small businesses. Make sure that you understand the bookkeeping system you are using and that you receive and study regularly produced financial reports.
An attorney’s services are essential not only in the planning stages of your business but also throughout the life of the business. The attorney can assist you in choosing your legal structure, drawing up agreements and contracts, and providing information on your legal rights and obligations. There are also online resources that provide legal information.
Small Business Banker
The capital requirements of any business small business, including a drug testing business, make it essential that a good working relationship is established with a local banker. Bankers are a good source of financial information and financing. It is recommended that you establish a relationship with your banker prior to applying for a loan.
There are many different kinds of insurance options available for business owners. An insurance agent or broker can advise you about the type and amount of coverage that is best for your drug testing business. The agent may be able to tailor a package that meets your specific needs at reasonable rates. If you are starting a new business, the insurance agent will need in-depth information about your business in order to help you get the insurance coverage necessary. Insurance for new businesses can be expensive.
Each of us has talents in many areas, but no one can be a master of everything. Consultants are available to assist in those areas in which you need expert help. There are a business, management, and marketing consultants; promotion experts; financial planners; and a host of other specialists who can help make your business more successful.
Most small businesses start out as either a sole proprietorship or a partnership, but many eventually explore the transition to another entity. Contact an attorney or accountant to learn the advantages and legal requirements of each to decide which form is best for you.
What is a Sole Proprietorship?
This is the simplest and least regulated form of organization with minimal legal start-up cost. A person (or couple) owns and operates the business and is responsible for procuring financing. The sole proprietor has total control and receives all profits, and business income is taxed as personal income. The major disadvantages include potential personal liability for the owner and potential dissolution of the business upon the owner’s death.
What is a Partnership?
A partnership is relatively easy to form and can provide additional financial resources. Each partner is an “agent” for the partnership and can hire employees, borrow money, and operate the business. Profits are taxed as personal income and the partners are still personally liable for debts and taxes. Personal assets can be attached if the partnership cannot satisfy creditors’ claims. A special arrangement, called a “limited partnership,” allows partners to avoid personal liability. Limited partnerships must be registered and must also pay a franchise fee. When entering into any partnership, a written agreement is essential.
What is a Limited Liability Company?
The limited liability company is treated as a partnership for U.S. income tax purposes and also provides the limited liability of a corporation. This option may be the preferred choice for certain new operations and joint ventures. Owners of limited liability companies are called “members.” These are comparable to stockholders in a corporation or limited partners in a limited partnership. To create a limited liability company, articles of organization are filed with the secretary of state. The members must also execute an operating agreement, which defines the relationship between the company and its members. Not all states have this option available.
What is a Corporation?
The most complex of business organizations, the corporation acts as a legal entity that exists separately from its owners. While limiting the owners from personal liability, this creates a “double taxation” on earnings (corporate tax and personal tax). The corporate structure may be advantageous because it allows capital to be raised more easily through the sale of stocks or bonds and can continue to function even without key individuals. It also enables employees to participate in various types of insurance and profit-sharing plans. Costs to incorporate vary from state to state. Contact the secretary of state for more information. A special type of corporation, an S corporation, allows owners to overcome the double tax and shareholders to offset business losses with personal income. S corporations are subject to an annual surcharge
What kinds of insurance are needed for your business? Talk to an insurance agent and discuss it with her or him. Some of the possibilities include
- Basic Fire Insurance.
- Extended Coverage. Protects against conditions not covered by fire insurance, including storms, explosions, smoke damage, and various other disasters.
- Liability Insurance. Covers claims against the business for bodily injury.
- Vandalism and Malicious Mischief Coverage.
- Theft Coverage. Protection from burglary and robbery.
- Vehicle Insurance. For use of vehicles for business.
- Product Liability Coverage. Insurance against liability for products manufactured or sold.
- Business Interruption Insurance. Payment of business earnings if the business is closed for an insurable cause such as fire.
- Professional and/or Malpractice Insurance.
- Workers’ Compensation. Disability and death benefits to employees injured on the job.
- Health Insurance.
Choosing a Name
Consider your business name carefully; you’ll have to live with it for a long time. The name should give people some idea of the nature of your business and should also project the image you want to have. Names can be simple, sophisticated, or even silly. Try to pick one that will grow with your business and not limit you in the future.
Here are a few good examples:
- [INSERT YOUR CITY NAME] Drug & Alcohol Testing
- [INSERT YOUR FIRST OR LAST NAME] Drug Testing Services
- Drug & Alcohol Testing Services of [INSER YOUR CITY NAME]
Once you come up with a name, make sure it is not already in use. You can look up current business names in the local telephone book, local government offices, trade directories, the Federal Trademark Register, or listings of corporate business names from the secretary of state, or you can hire someone to do a search.
Along with a name, many businesses also develop a logo, which provides a graphic symbol of the business. As with the name, your logo should be carefully developed to project the image you want for your business.
You may want to obtain a trademark from the U.S. Patent & Trademark Office to protect your business name and logo.
Find a Location
Your choice of a location can make or break your drug testing business, so put careful thought and analysis into your needs. This is not a decision to be made quickly or lightly.
Consider the following factors when choosing a location:
- Specific needs of your business—space, special installations, etc.
- Zoning requirements (check with your local planning office)
- The appearance of the area, safety
- The customer base of the area, population density, and type
- Traffic patterns, ada-ada-accessibility/, and parking
- Nature of the competition
- Lease terms
- Assistance—merchants associations, landlords, etc.
There are a number of places to go for assistance in choosing a location. The local Chamber of Commerce can often help. Small Business Development Centers, funded in part by the U.S. Small Business Administration, have offices throughout the country that provide free counseling assistance as well as literature and information. There are also professional consultants, bankers, lawyers, or realtors who have information that can help in making this important decision.
So, do you really want to start your own business? As a first step, ask yourself why you want to own your own drug testing business.
- Freedom from the 9 to 5 work routine
- Being your own boss
- Do what you want when you want to do it
- Improve your standard of living
- Boredom with your present job
- Having a product or service for which you feel there is a demand
Some reasons are better than others; none are wrong. Be aware, however, that there are tradeoffs. For example, you can escape the 9 to 5 daily routine, but you may replace it with a 6:00–10:00 p.m. routine.
Do you have the skills?
Try to be objective in the following self-analysis. Remember, it is your future that is at stake and if you are not ready it’s best to stop, drop and stay at your job!
- Are you a leader?
- Do you like to make your own decisions?
- Do others turn to you for help in making decisions?
- Do you enjoy competition?
- Do you have the will power and self-discipline?
- Do you plan ahead?
- Do you like people?
- Do you get along well with others?
Can you handle the physical, emotional, and financial strains?
Think about the physical, emotional, and financial strains you will encounter in starting a new business. Are you aware that running a drug testing business may require working twelve to sixteen hours a day, six days a week, and maybe even Sundays and holidays?
- Do you have the physical stamina to handle the workload and schedule?
- Do you have the emotional strength to withstand the strain?
- Are you prepared, if needed, to temporarily lower your standard of living until your business is firmly established?
- Is your family prepared to go along with the strains they, too, must bear?
- Are you prepared to lose your savings?
What are my option for starting a business?
There are several forms of business ownership, each with its own advantages and disadvantages. Depending on your reasons for starting a business, your personal needs, personality, or concern about risk, you may choose to:
- Start a business from scratch
- Buy a business that is already established
- Buy a franchise
Starting a Drug Testing Business from Scratch
Where do you start? We’ve discussed the advantages and disadvantages of starting a drug testing business from scratch. Be aware that a large percentage of new drug testing businesses fail. You need to be honest with yourself in evaluating whether you have the right personality for taking on a project of this sort.
The most important thing you can do to prepare for starting a drug and alcohol testing business is to develop a thorough business plan. With this plan, you will be able to see the strengths and weaknesses of your business and make decisions accordingly. It is helpful at this point to get some professional assistance, someone who can look at your business plan objectively and provide ideas and insights. Organizations that provide free or low-cost assistance are available in most areas.
After investigating the needs of your business, it is necessary to take care of the groundwork, which includes the legal structure, business name, location, licenses, permits, financing, and other requirements. Go through the checklist to make sure you’ve considered all the main tasks in starting your business.
Buying an Existing Business
Buying a drug testing business that is already operating is an excellent way to get started and has many advantages. But, as with any business decision, your purchase takes careful thought and research.
If you feel that buying an existing drug testing business is right for you-you to need to locate a business for sale. You can contact businesses yourself, look in newspaper advertisements, online business listings, ask friends or acquaintances for suggestions, or get professional help from a real estate broker or consultant.
When you find a business you are interested in, plan to do some serious research and analysis. You need to study the records, ask questions of customers and neighbors, do market research, and learn all that you can about the business. Professionals will be very helpful at this time, especially accountants and lawyers. Some of the areas to evaluate include
- Physical assets, such as equipment, fixtures, inventory
- Client base and customer loyalty
- Financial condition
- Products or services offered
- Warranty liabilities
- Business relationships with suppliers, distributors, etc.
How much is the drug testing business worth? There is really no simple answer to this question. The fair market value comes down to what the buyer is willing to pay and the seller is willing to accept.
A dollar value for a business can be derived in several ways. One is to look at replacement cost: what it would cost to start the business from scratch. Some parts of a business are easy to calculate: inventory, equipment, fixtures, etc. But others are more difficult to put a dollar value on, such as customer base, name recognition, and goodwill.
Another approach looks at the return on investment. For example, if you expect a 25 percent annual return from your business, you can look at the net cash flow of the prospective business and calculate what it is worth. Many business brokers use an income multiplier, that is, an accepted industry factor that is multiplied by the annual gross income of the business. Another easy approach is to compare the business with other similar businesses on the market. Professional appraisers may be able to provide a dollar value for businesses.
Now it’s time to prepare a purchase offer. This is an opportunity to work with the seller to negotiate the best solutions for both of you. Some common types of business transactions are
- Outright purchase. The disadvantage of this is that it leaves the seller with little incentive to be concerned with your success as a new owner. If you find a problem, you may have difficulty recovering any money.
- Phased-in purchase. The buyer acquires the business over a period of time, usually three to five years.
- Lease management. The business is leased from the owner for a period of time with the option to purchase at a later date for a specified price and terms.
- Management contract. You manage the business for a fee with the option to buy if the business meets your expectations. As with all business transactions, the terms need to be carefully spelled out.
There are many ways to finance a business purchase. Each has its own benefits and risks. Creativity can be exercised to come up with the best solution for both buyer and seller.
Preparing the purchase offer and closing the sale should be handled with the assistance of your lawyer. Be familiar with the terms of the agreements and the legal documents involved.
Buying a Drug Testing Franchise
A franchise is one way to avoid many of the risks and headaches associated with starting a new drug testing business. When you buy a franchise, you are buying the right to use the franchisor’s name, product, and management approach. A franchise already has its infrastructure in place as well as a promotional strategy. Name recognition may be well-established and you have a good idea of what you are getting.
Before you buy a franchise, proceed cautiously and do your homework. You might want to take a test to see if you will make a good franchise owner. Make sure the company you are considering fits your personal interests and needs. Ask a lot of questions. Visit a franchise unit and spend some time there. Talk to the owner and customers. Imagine working there for years.
When you find a franchise you like, contact the franchisor to request information. Generally, you will be asked to provide some basic information, including personal financial data. If this initial paperwork is satisfactory, you should be invited to visit the home office where you will usually receive a tour, sales presentation, and a Uniform Offering Circular (UFOC) with information about the company. This information should help in your decision to negotiate a franchise purchase.
Study the UFOC carefully. It is good to have professional help in analyzing financial statements, litigation history, and other background information. Examine the franchise agreement carefully with your lawyer. Talk to as many franchisees and visit as many units as possible. Proceed with the deal only when you are fully satisfied that this is the business for you.
The information on this page may have changed since we first published it. We give great legal advice, but this page (and the rest of our site) is for informational use only and is no substitute for actual legal advice. If you’d like to establish an attorney-client relationship, reach out to us and we’ll tell you how we can make it official. Sending us an email or reading this page alone doesn’t mean we represent you.
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