What are the most profitable small businesses today? Some things to look at include market size, competition, and average profitability for that industry. To start, here are the seven most profitable small business types.
Which Industries Are Most Profitable?
Before determining which small business is the most profitable, it’s important to note the industries that have the highest average profitability. Keep in mind that profit margins are averages and may be much more or less depending on the product or service it provides. According to a report published by New York University, the following industries have the highest net profit margins: The good news is that it’s never been easier to start a small business with the data, tools, and resources that are available to everyone. Start by analyzing data, aligning it with experience, interest, and market needs, then begin building a business plan.
Accounting and Bookkeeping
Average profit margin: 16.5% All businesses should keep a record of their accounting and finance management. That said, the opportunity to provide accounting and bookkeeping services to local small businesses is virtually limitless. Services include bank account reconciliation, tax preparation, managing accounts payable and accounts receivable, and financial statement preparation.
How To Get Started
First, you need to have a basic understanding of how a business runs, understand financial statements, and have access to the appropriate accounting software. If you go as far as providing auditing services, then you’ll need to obtain your Certified Public Accountant (CPA) designation.
Financial Advisor
Average profit margin: 20.34% - 25.18% Financial advisors are financial professionals who provide advice and plans to their clients. This can range from investment management, financial planning, insurance planning, and estate planning services. They make money by charging a fixed fee, a commission fee on products they sell, or a mix of these fee structures.
How To Get Started
Financial advisors are required to obtain proper licensing through FINRA, which includes passing one or more relevant licensing exams. Once proper licensing is obtained, you’ll need the appropriate financial software to manage clients’ money as well as sources to obtain new clients.
Software as a Service (SaaS)
Average profit margin: 19.66% Software as a Service (SaaS) allows developers to create software and provide it to customers over the internet rather than via software downloads. SaaS companies are potentially very profitable businesses. Software developers can create a useful software product, then sell that product to businesses or consumers with little overhead.
How To Get Started
First, you need an idea or plan for a software product that solves a common problem. Next, you need to be a well-versed software developer or have the capital to hire a skilled developer to develop your software or app. You then need to sell the product to businesses or consumers and continually develop your product to better meet the needs of your clients.
Real Estate Rentals
Average profit margin: 6% or more A popular small business is buying and renting out real estate property. Everyone needs a place to live, which creates a great business opportunity for entrepreneurs. You can start with just one rental property and grow slowly by purchasing more over the years, or you can buy multiple properties upfront and rent them all out. Some real estate rental businesses will list their properties for rent on popular short-term rental platforms such as Airbnb or Vrbo. Your profit margin will depend on how many properties you own and how much debt you have on each of those properties. The more properties you own and the more equity you have in each property, the larger the profit margin.
How To Get Started
To start, you need to have finances in order to purchase a rental property. You’ll need at least a 20% down payment to get a mortgage on a rental property. Then you’ll need to advertise your property for rent on your local news or popular sites such as Zillow.
E-Commerce Store
Average profit margin: 10%
How To Get Started
Tax Preparation Services
Average profit margin: 20.3% All businesses and consumers are required by law to pay appropriate taxes on their income, which creates a great business opportunity. Tax preparation services include providing advice and preparation services for taxes. Profit margins for tax prep services largely depend on how much you charge for your services and can start at 20% or more.
How To Get Started
First, you need a solid understanding of U.S. tax laws and a basic understanding of financial statements. Then you need access to appropriate tax prep software to prepare and submit appropriate tax forms to the IRS on behalf of your clients.
Food Truck
Average profit margin: 7% to 8% A way to start a restaurant business (or an extension of a restaurant business) is via food trucks. Food trucks provide mobile food catering services to businesses and communities, and are relatively easy small businesses to start. Whether it is breakfast food like waffles, ethnic food such as Mexican, or even pastries such as cookies, food trucks are great ways to build and expand a small business.
How To Get Started
First, you’ll need a food handlers permit. Once obtained, you need a niche and menu of items for food offerings. Lastly, you’ll need inventory and a food truck with a plan for communities and events you’ll attend to sell your food.
The Bottom Line
For businesses just starting out, it’s important to have a proper plan in place while only spending money on the things you can’t operate without. In the beginning stages of a small business, utilizing your resources such as your own money and professional network can be the difference between a business that lasts and one that doesn’t. If you have the capital to do so, you can start out by purchasing an already established business. Further, it’s important for small businesses to clearly understand who their target market is. There is no use trying to sell a product or service to a market that doesn’t have a need for it. Once you know your target market and ideal customer, you can accurately market to those communities to grow your business. Of course, always make sure you seek advice from appropriate professionals such as a tax advisor, business consultant, accountant, or financial advisor where appropriate.
