Move over, wild-and-wacky startup ideas simmering in the back of a garage -- if making money is foremost on the brain, an entrepreneur may be better off going the way of the buttoned-down accountant. While being profitable isn't the only concern of a new small-business owner, hard numbers show what doctors, lawyers and orthodontists already know: their businesses are top money-makers.
Highest Profit Margins
According to financial data company Sageworks, small businesses with the highest profit margins, as of 2014, are in the financial sector. Accounting, payroll, tax preparation and bookkeeping businesses had net profit margins of 20 percent, more than any other type of small business. Among other professional offices, legal services had margins of 16.5 percent, and offices of real estate agents, physicians and dentists each had close to 15 percent margins. Small businesses can improve their margins by identifying and reducing their biggest operating expenses.
Service industries are often on most-profitable small business lists, notes Sageworks, because they don't require large amounts of startup investment. With relatively low overhead and equipment costs, consultants, accountants and lawyers keep more of their money. They can often work out of the home and save further on expenses. Yahoo Small Business channel includes a variety of service professions in its most-lucrative list: investment advisers, real estate appraisers, portfolio managers, chiropractors and freestanding ambulatory surgical and emergency centers. To maximize profits, businesses in the service sector can focus on delivering their top most-profitable services, rather than spreading themselves too thin.
Viewed another way, a profitable small business isn't one that just posts a hefty margin one year, only to fall prey to a shrinking market in subsequent years. A small business that enters a market on a strong positive uptrend gets a boost from existing market conditions to continue posting profits into the future. In this sense, green building startups show promise with annual industry growth of 23 percent through 2016. Additionally, corporate wellness companies should see 10 percent growth in that industry during the same time.
Profitable businesses address needs and critical problems, adapting to what people are clamoring for. Small businesses that can deploy technology to give people the solutions they want also rake in the revenue. Educational software companies help satisfy the growing demand for personalized lesson plans, student progress-tracking and educational games, riding that trend through 2017. With business data migrating increasingly to the digital space, small businesses can address cyber security concerns and get big bucks for doing so. All small businesses can use technology to enhance profitability by migrating to mobile applications that simplify the payment process.
- Entrepreneur: The Most Profitable Types of Small Businesses
- Entrepreneur: 5 Fast-Growing Industries Ripe for Entrepreneurs
- Yahoo Small Business: The Most Profitable Small Businesses
- Business Accounting Guides: Net Profit Margin
- Small Town Marketing: Five Ways to Make Your Small Business More Profitable
- Harvard Business Review: Making Sustainability Profitable
- Small Biz Daily: The 5 Technologies You Need in 2015
Timothea Xi has been writing business and finance articles since 2013. She has worked as an alternative investment adviser in Miami, specializing in managed futures. Xi has also worked as a stockbroker in New York City.