MOST PROFITABLE SMALL BUSINESSES

Small business is often considered the backbone of America, employing tens of millions of professionals in virtually every possible industry.

Every day, new companies open their doors, provide jobs, and drive local economies, helping to sustain the functions that our nation needs most.

However, not all small business ideas are made equal, and some are more likely to excel than others. Although you think you have a good business idea, your target market may not feel the same way. Here’s what you need to know about the landscape of the most profitable small businesses and the opportunities available to you.

The Small Business Landscape

By definition, a small business is any company that employs fewer than 500 employees or falls beneath an industry-specific annual receipts cap. While this makes for quite a broad pool of organizations, most small businesses are significantly smaller than this, employing no more than a few dozen employees at most. In fact, firms with under 100 employees make up the majority of small businesses.

As of 2016, there are approximately 28.8 million small businesses in operation in the United States, comprising 99.7 percent of total U.S. businesses. Overall, 56.8 million employees work for small businesses, or 48 percent of the workforce. This nets 1.1 million new jobs and greatly contributes to the strength of the economy. The number of proprietors is on the rise, too: this figure grew by 1.3 percent in 2014.

In the second quarter of 2014, 220,000 new small businesses entered the workforce – but 205,000 exited. While this growth is exciting, it’s important to note that not all small businesses will excel, either short-term or long-term. For those considering opening a small business, it’s critical to note what industries tend to succeed – or offer more wiggle room – as well as which opportunities are least likely to turn a profit.

The 15 Most Profitable Small Businesses

Small businesses take many shapes and sizes. According to a report by SageWorks in 2016, these are among the industries and areas of business with the highest net profit margins, or the percentage of profit left after eliminating expenses related to providing goods and services. While not a perfect indicator of profitability, these industries offer great potential for those seeking a stable, secure sector in which to launch a fledgling enterprise.

1. Accounting Services

As one of the core business functions supporting nearly every kind of individual and corporation, accounting services are highly in demand – and clients are willing to pay. With services that encompass business outsourcing, personal financial planning, bookkeeping, and tax preparation, this dynamic field offers significant potential. There are next to no overhead start-up costs for professionals outside of office space, software, minimal manpower, and electronics.

The average net profit for accounting services companies comes in at 18.3 percent, offering an environment with lots of chances for gain and plenty of margin for error. A universal need, accounting services remains a consistently positive industry for business growth. However, the barriers to entry in accounting are quite high.

Successful accountants in every service area often have a high level of education, at minimum an undergraduate degree. Those with a more advanced skill set may have a CPA license or an IRS Enrolled Agent certification. While more challenging to obtain, professionals with these kinds of additional qualifications can demand higher rates and will subsequently generate higher revenue.

2. Legal Services and Law Firms

The legal industry is indispensable across a multitude of personal and professional areas, providing support for individuals and businesses alike. Sooner or later, almost everyone will need a lawyer, as the law isn’t an area in which the amateur can practice. Law firms, much like accounting services, can provide diverse skills, including:

• Criminal law
• Business law
• Family law
• Trusts and estates
• Constitutional law
• Intellectual property law
• Personal injury law
• Employment law
   

Due to the similarities between accounting and law in terms of universal need, it’s no surprise the average net profit margin for legal services and law firms in the small business sector came in at 17.4 percent in 2016. However, like accounting, the barrier to entry in law is extremely high.

Attorneys must attend a four-year undergraduate program, go to law school, and then pass the state bar exam. Additionally, some attorneys only practice in narrow fields, so a firm with multiple focuses may require additional staff and thus require higher human capital costs.

3. Real Estate Sales and Leasing

The real estate market has rebounded significantly since 2008, offering a wealth of both affordable and luxury housing options nationwide. This is especially true in the rental market, as the millennial generation is not purchasing homes at the same rates as preceding generations. In fact, there are more renters today than any time since 1965, demonstrating a booming market with no signs of slowing. While home purchases among millennials may not be at the levels of past generations, the buying and selling real estate isn’t without potential, either. Sooner or later, most people will need to buy a home or commercial property, putting you in position to profit.

With an average net profit margin of 17.4 percent for leasing and 14.8 percent in sales, real estate has a lot to offer. While management offices, sales reps, brokers, and landlords must display diverse skills – accounting, payroll, management, repair, scheduling, marketing, and maintenance abilities are all key elements in a successful real estate office – no specific degrees or backgrounds are required to succeed in real estate. Overhead costs tend to be low as well; agents can work from almost anywhere.

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4. Outpatient Care Centers

Outpatient medical care is a unique field, providing for patients’ needs without permanent beds, around-the-clock staff members, or the licenses and permits required to host patients overnight. Instead, in these facilities, patients receive care, whether medical or surgical, and return home the same day.

Outpatient clinics require access to doctors and nurses who are licensed to practice, and this doesn’t come cheap. The costs of getting started in outpatient care can be steep as well, as any major procedure or even a standard checkup requires a significant investment in costly medical equipment. However, net margins are still good at 15.9 percent, largely due to the cost of procedures and medical reimbursements. Costs of a simple outpatient treatment can reach $15,000 or more even after an insurance company discount, providing a steady stream of revenue into these kinds of businesses.

5. Copywriting

Copywriting serves a valuable purpose in the market, connecting talented writers with companies in need of promotional services. In recent years, the demand for quality web copy has accelerated, increasing the need for skilled professionals. Today’s copywriters create advertising and marketing materials: a realm that now includes social media ads, website copy, blog posts, and even email messages.

Copywriting requires no formal education, making this industry fairly easy to adopt, even for those without experience in content creation. There is also no need to invest in a costly commercial space; most copywriters work from home on a freelance basis and pay very little in overhead expenses.

Demand for good writers is high, making acquisition of work fairly straightforward for those seeking clients. However, writing doesn’t necessarily come easy, and only those with a true talent for language will succeed in this niche field.

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6. Dental Offices

Dental health is an important part of maintaining overall wellness, with preventative appointments recommended twice a year for the average American. While not everyone sticks to this schedule, dental services are needed in every area, serving both adults and children. Further, dental care becomes essential when issues like cavities and gum disease arise, creating even more work for those in the dental profession.

With an average net profit margin of 14.1 percent, the dental industry offers plenty of room for success for those with adequate training. Getting into dentistry can be quite challenging; dentists must obtain both a bachelor’s degree and a doctorate in dentistry, with dental hygienists requiring a minimum of two years of school. Dental equipment can be expensive as well, with chairs alone costing $3,000 or more. However, dental procedures are often expensive, with the average cleaning costing $288 and added costs for fillings, x-rays, extractions, and root canals.

7. Personal Training and Fitness Instructors

Over the last several decades, the demand for qualified fitness instructors has only grown, especially as boutique gyms have taken over the market. Athletic centers now dominate in every major metro area, offering a combination of standard gyms and specialty centers like Crossfit boxes. While fitness trends come and go, the need for educated trainers and instructors stays constant.

Personal trainers can work in one of two ways: at a self-owned gym where clients can join and exercise, or under the umbrella of a larger gym on a contractor basis. This provides a high level of flexibility, allowing professionals to work with or without significant overhead. Getting started in personal training can be fairly simple as well; reasonably fit individuals need only to take certification exams to be qualified to work in the field. In some cases, particularly for those who work as instructors, little formal education outside of a demonstrated knowledge of subject matter is required.

8.Funeral Homes

No matter the state of the market and the fates of other careers, funeral services will always be a booming business. As morbid as it may sound, a poor economy doesn’t stop the transition from the realm of the living to the great beyond. As such, funeral homes always see a steady stream of customers, providing a largely recession-proof business model for entrepreneurs who are leery of upcoming economic downturns.

Getting started in the mortuary sciences, however, requires at least a bachelor’s degree and capital for a sizable initial investment. Funeral homes need a physical office location, high-cost inventory like caskets, and the space and equipment for preparing deceased loved ones for wakes, funerals, cremation, and interment. However, many of these costs can be recouped with a steady operation; service charges in the funeral industry can be extremely high, with the average service costing tens of thousands of dollars, and caskets priced as high as $10,000.

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9. Cleaning Services

Cleaning services offer essential opportunities to both residential and commercial properties, helping to manage tasks many people do not enjoy or do not have time to complete. Cleaning services can function as home-based support one or more times per week, or as a daily resource for commercial operations. With average rates of $18 to $35 per hour, cleaners bring in substantial revenue for simple, yet necessary services.

Due to the nature of a cleaning service – no physical office is required, equipment costs are low and can be billed back to the client, and hours of operation are flexible – enterprising entrepreneurs can see significant success in building a company in this industry. Labor is very affordable; no education or experience is required to work as a residential or commercial cleaner, so hiring costs can be low and wages provided are often near minimum.

10. Warehouse and Storage

Storage facilities are essential everywhere and can be quite coveted in larger cities, like New York or San Francisco. Serving both residential customers in a self-storage format or companies unable to purchase their own warehouse spaces, having ample space to store goods and possessions offers compelling business opportunities.

With an average net profit margin of 11.6 percent, warehouse and storage companies are able to turn building ownership into a lucrative business. While initial costs can be steep – even in rural areas, warehouse spaces are rarely cheap – the initial investment can be easily offset by rental revenue. In many applications, renting warehouse space can be fairly hands-off; clients pay rent and are then free to do with the available space what they will. This makes the time commitment in your business minimal.

Additionally, warehouses may require some skilled labor, like forklift operators, but for the most part, warehouse employees are unskilled and therefore easy to hire and cost-effective to employ.

11. Doctor Offices

Doctors serve a necessary purpose in all areas of society, creating a way for individuals to address both major and minor health complaints. Doctors are able to diagnose illness, create customized treatment plans, and, if necessary, admit patients to local hospitals to address serious conditions. While the private practice climate has shifted over the last several decades, moving away from traditional small offices to a consortium model, medical offices can still provide a lucrative business opportunity.

Average net profit margins for medical practices come in around 11.5 percent, demonstrating strong potential for interested entrepreneurs. While the barriers to entry are extremely high – doctors must attend four years of undergraduate education, four years of medical school, a minimum of three years of residency, and pass all licensing exams – the cost of service can offset high labor costs. Insurance reimbursements can be tens of thousands of dollars for simple procedures, offering significant income in exchange for in-demand services.

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12. Food Truck Operation

Often seen as the new frontier in food service, food trucks are making a mark in virtually every major metro area. Offering a convenient and low-cost alternative to sit-down restaurants that generally exceed fast food and fast casual eateries in terms of quality, food trucks are a trend that shows no sign of dying down. Today, there are over 4,000 food trucks in operation, comprising an industry valued at $1.2 billion.

Starting a food truck is a relatively low-cost endeavor, with the lowest estimates coming in under $30,000. While a truck can be expensive, a fully outfitted food truck still requires significantly less capital – both in the beginning and throughout operations – than a physical restaurant.

While a traditional restaurant is stuck in its bricks, food trucks can extend their reach and travel to different neighborhoods and events to gain a cult-like following for their latest dessert-based empanada treat. Best of all, they can embrace modern Point of Sale (POS) technology like an iPad cash register to ring up sales and track customers.

While no education is technically required to start a food truck, successful enterprises are often run by practiced chefs who can compose and execute a desirable menu.

13. Landscaping and Gardening

From golf courses to residential homes, landscapers play a vital role in beautifying properties of all shapes and sizes. Offering services like mowing, fertilizer treatments, planting and cultivating new growth, landscapers can find work virtually anywhere by providing services that may not be possible for homeowners and business owners to perform independently.

The cost to start up a landscaping company is minimal; with no commercial space required outside of storage and a modest investment in landscaping equipment, it’s possible to get off the ground for $10,000 to $20,000. Considered largely unskilled labor, human capital costs are often reasonable in this industry as well.

Landscapers may face issues in colder climates that see heavy snowfall, and thus experience no need for mowing, gardening, or grass treatments throughout the winter. However, many enterprising businesses offer plowing and salting when the weather turns, transforming seasonal services into a year-round operation.

14. Schools and Instruction

Educators provide a universal need, offering necessary skills and resources for children and adults alike. Considered an essential part of self-improvement as well as a legal requirement early in life, the education industry commands billions of dollars on an annual basis.
Outlets for education exist in many forms, providing a wide open arena for those interested in potentially teaching or tutoring developing minds. Professionals can operate in areas including:

• Schools
• Preschools and daycare institutions
• College prep programs
• Tutoring
• Test prep services
• Testing centers

While all academic models have different structures and objectives, the industry’s average net profit margin is a respectable 10.5 percent. This is largely due to the low requirements for the establishment in many of the more ancillary services in the industry; tutoring and test prep companies, for example, do not necessarily require a physical location or substantial assets.

While hiring educators can mean working with those with teaching licenses and a college education, tutors and test prep employees are often college students or recent graduates, providing a pool of lower cost, effective labor.

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15. Party Services

There’s no bad time for a party, making the party services industry a great opportunity for those seeking stability and profitability. Even in times of economic depression, weddings, birthday parties, and corporate holiday parties continue to play a role in social calendars, providing steady revenue streams. In addition, party services can be flexible and versatile, covering planning, catering, bartending, and serving, among other functions.

Party-focused operations have significant earning potential, boasting minimal overhead, the ability to bill virtually all outside costs, like alcohol, to clients, and comprehensive services. This allows for employment opportunities in a wide range of events. In addition, some services offered by party companies, like serving alcohol or food service, require special licenses and certifications, making this a job most party hosts can’t do alone. In spite of this, labor costs are often low, as bartending, serving, and organizing don’t necessitate formal education.

Least Profitable Small Businesses

In examining the most profitable small businesses, it’s important to explore the other side of the coin: those businesses with tight margins that make maintaining profitability more of a challenge. By average net profit margins, these are the least profitable small businesses of 2016.

• Oil and gas extraction (-7.6%): With such high overhead costs, even the revenue available in this high-demand field can’t account for the immense equipment and human capital requirements.
• Support activities for mining (0.6%): Mining can be extremely expensive, requiring huge equipment expenses, highly trained labor, and slow processes, leading to revenue streams that can’t always sustain costs.
• Beverage manufacturing (0.8%): The combination of expensive manufacturing equipment, warehouse space, and extremely low-priced products makes it hard to break ground in the beverage industry.
• Grocery and related product merchant wholesalers (1.9%): With so many different product sources, including large and small farms and manufacturers, sourcing and supplying groceries leaves little room for big profits.
• Lawn and Garden Supplies Stores (2.0%): While potentially lucrative in states like Florida and California, most areas of the country don’t need year-round access to lawn and garden equipment, making it hard to get ahead in this niche area.
   

With such tight margins, there is little room for error; one small mistake can shift the balance from positive to negative, putting your company in the red – and making it hard to come back.

While industry expertise can mitigate the risks, the truth still stands: 20 percent of small business, unfortunately, fail in the first year. Hedging your bets in favor of industries that boast profit potential can help you mitigate these risks, increasing your odds at becoming one of the four out of five companies that manage to stay afloat past year one.

Positioning Your Business for Success
Starting a successful company relies on many factors, from business acumen and experience to the resources available at your disposal and a solid business plan. While no one industry boasts guaranteed success, those with higher-than-average net profit margins are better positioned for potential prosperity. This list of the most profitable small businesses provides a beneficial starting point, offering plenty of possibilities for your entrepreneurial ambitions so you can go out there an start a business.