Being talented with numbers can really pay off if you’re looking to start a profitable business.
Accounting and tax services takes the top spot on the list of the most profitable type of small business with a generous 18.4 percent net profit margin followed by real-estate services (15.2 percent), law firms (14.5 percent) and doctor’s offices (13 percent) reports Sageworks, a financial data service that analyzed the net profit margin of more than 16,000 small businesses (that earned less than $10 million) between September 2014 and August 2015.
(The average net profit across all industries for this report's time period was 7.2 percent.)
What makes these industries profitable? For one, they’re driven by human capital.
“Service industries,” says Sageworks analyst Jenna Weaver, “are very common to find on the most profitable small-business list. This is generally due to lower overhead and startup costs. A lot of these industries you can start from your house.”
While profit isn’t the only matter for an entrepreneur to consider -- other factors to consider are whether the business matches his or her skills, what sort of licensing or training is required and how the business would fare during a recession -- it’s an important place to start.
Here’s the list of the 5 most profitable types of small businesses and their net profit margins.
1. Accounting, Tax Preparation, Bookkeeping and Payroll Services: 18.4%
“The accounting industry is consistently a top performer on our list,” says Sageworks’ Weaver.
No matter how the economy is doing, everyone needs accountants. Also, this industry tends to have low overhead and repeat clients.
2. Management of Companies and Enterprises: 15.5%
This industry is made up of small, privately-owned offices of bank holding companies and other types of holding companies.
Some well-known examples of holding companies (that do not fall into the small-business category) are Warren Buffet’s Berkshire Hathawayand Carl Icahn’s ICahn Enterprises.
3. Offices of Real Estate Agents and Brokers: 15.19%
While the real-estate market is largely dependent on the health of the economy, real-estate brokers and agents have low operating costs and all you need to get started is an agent or brokerage license.
4. Automotive Equipment Rental and Leasing: 14.55%
With the on-demand economy on the rise, Sageworks analyst Libby Bierman says that people may be leasing and renting more cars using on-demand services such as Zipcar -- along with more traditional rental services such as Herz.
5. Legal Services: 14.48%
Anyone who has ever hired a lawyer knows it’s not cheap. Law, like accounting, generally has low operating costs as well as repeat clients. However, this business category includes not only lawyers, but notaries, settlement officers (who deal in the transaction of securities) and title search agents in real estate.
Related: The Most Profitable Types of Small Businesses
