Despite the seeming dominance of large corporations, small businesses continue to be the engine of the North American economy. According to the U.S. Small Business Administration (SBA), approximately 550,000 new small businesses are established every month in the U.S., creating two out of every three new jobs. Over half of Americans own or are employed by a small business.
While it is common knowledge that most successful small businesses start with a great business idea backed by a solid business plan, some businesses and industries have higher profit potential than others. If you are an entrepreneur or investor looking for a new small business opportunity, limiting your choices to the most profitable small businesses listed in this article is one of the best ways to ensure success.
In addition to profitability potential, many of the businesses listed below are experiencing strong demand due to the continuing trend by corporations to outsource business functions such as accounting, payroll, information technology, social media, legal services, and even marketing. Many former full-time employees of larger businesses have become self-employed due to outsourcing, and the trend shows no signs of slowing down.
Profit Margin by Sector
As the following table demonstrates, profit margins vary substantially by sector, with professional services scoring the highest:
|Sector||Avg. Profit Margin (2017)|
|Professional, Scientific, IT services||11.9 percent|
|Accommodation and Food Service||4.4 percent|
Here are 10 of the most profitable small businesses as ranked by Sageworks in order of average profit margin and listed with the corresponding North American Industry Classification (NAICS) Code. For comparison, the average profit margin of companies on the Standard and Poor’s (S&P) 500 was 11% in 2017.
01 Accounting, Tax Preparation, Bookkeeping, and Financial Planning
Education/Training and Barriers to Entry: Bookkeeping and tax preparation training is relatively easy to obtain, however, accounting certifications (such as CPA, CA, etc.) require a bachelor’s degree, subsequent training, and related work experience.
Average Profit Margin: 18.4%
02 Real Estate Leasing
Education/Training and Barriers to Entry: Requirements depend on jurisdiction – some states require a leasing agent license, others require a real estate agents license. Both require a training course and completion of the licensing exam(s).
Average Profit Margin (Leasing): 17.9%
03 Legal Services
Capital Investment/Overhead: Whether operating from home (as many solo lawyers do) or on commercial premises, quality office space for consulting with clients is a must. Other costs include basic computing equipment, software, and malpractice insurance.
Education/Training and Barriers to Entry: Becoming a lawyer generally requires a four-year bachelor’s degree plus three to four years of law school followed by passing the bar exam to become licensed to practice.
Average Profit Margin: 17.4%
04 Outpatient Clinics
Education/Training and Barriers to Entry: Becoming a doctor typically requires at least 10 years of post-secondary education, including an undergraduate degree, medical school, and a residency program. Specialization requires additional schooling and training.
Average Profit Margin: 15.9%
05 Property Managers and Appraisers
06 Dental Practices
Education/Training and Barriers to Entry: Becoming a dentist requires a bachelor’s degree plus four years of dental school. Additional training/education is required for specialization.
Average Profit Margin: 14.8%
07 Offices of Real Estate Agents and Brokers
Education/Training and Barriers to Entry: Realtors must take a real estate course, pass the licensing exam and become a member of the local real estate association. To become a broker you must have at least a year’s experience as a sales agent before taking the broker’s training course, passing the examination, and obtaining a broker’s license.
Average Profit Margin: 14.3%
08 Other Health Care Practioners
Education/Training and Barriers to Entry: All Health Care providers require a bachelor’s degree followed by a degree program in the specialization in order to become a licensed practitioner.
Average Profit Margin: 13.3%
09 Management, Scientific and Technical Consulting Services
Capital Investment/Overhead: Startup costs are minimal except for some of the scientific disciplines that may require specialized equipment. Most can be operated as home-based businesses.
Education/Training and Barriers to Entry: A bachelor’s degree at minimum, typically followed by specialized training and/or related work experience.
Average Profit Margin: 12.1%
10 Warehousing and Storage
Education/Training and Barriers to Entry: Running a warehousing/storage facility does not require any education or training; however, prior experience in the industry is helpful. Many such facilities provide no services other than storage space, utilities, building maintenance, and security – customers can utilize the space however they wish.
Average Profit Margin: 11.6%
By SUSAN WARD