Small businesses have been the backbone of an economy that has grown. No wonder that the American Dream is often about owning your business and turning it into a profitable venture. Planning your small business path is perhaps the most crucial part of a successful venture.
What are today’s most profitable small business? You should also consider the size of the market, the competition and the average profitability in that industry. Here are the top seven types of small businesses.
The Key Takeaways
- With the data, tools and resources that are available to all, anyone can start a small company.
- Start a business that you enjoy and are familiar with. This will increase your chances for success and reduce your risk of burnout.
- Profit margins vary depending on what you sell and the industry in which it is offered.
- It takes 18-24 months for most small businesses to generate a profit.
- When appropriate, always seek professional advice, such as from accountants, lawyers, financial advisors and business consultants.
What Industries are the Most Profitable?
It’s important to know which industries have the highest average profits before deciding on the most profitable small business. Profit margins can vary greatly depending on what the business offers. A report by New York University shows that the following industries are the ones with the highest net profit margins. 1
| INDUSTRY | NET PROFIT MARGIN | DESCRIPTION |
|---|---|---|
| Banks | 31.31% to 32.6% | Both regional banks and money centres are included. |
| Financial services | 8.87% to 32.3% | Accounting and bookkeeping services, asset management, investment banking or brokerage services |
| You can also download the software. | -10.36% – 29.04% | Included are internet software, entertainment and system software |
| Real estate | -3.17% – 21.77% | Real estate investment trusts (REITs), real estate development and operations, and services are all included in the general real estate sector. |
| Health care | From 2.42% up to 16.64% | Information and technology in health care, products and services related to health care, and support services |
| Homebuilding | 12.73% | Homebuilding and Development |
| Restaurant/Dining | 12.63% | Restaurants and retail dining services |
| Insurance | From 8.87% up to 12.6% | Life insurance, general insurance, and property and casualty coverage |
| Buy it Now | From 1.11% up to 9.63% | Online retailers and distributors of food and grocery, automotive, building materials, and other products. |
Tables like the one above show that certain industries have a wide range of net profit margins. This means that some segments within the industry are more lucrative than others. You can identify opportunities for your small business by using the average net profit margins of industries.
It’s easier than ever to start a business, thanks to the tools and data that are readily available. Analyze data and align it with your experience, interests, and market requirements, before you begin to build a business plan.
Accounting and Bookkeeping
Average Profit Margin: 16 %
Accounting and financial management should be documented by all businesses. The opportunity to offer accounting and bookkeeping to small local businesses is almost limitless. The services include tax preparation, bank account reconciliations, managing accounts payable and receivables, and financial statements.
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You need to understand the basics of how businesses run, financial statements and accounting software. If you want to provide auditing services, you will need your Certified Public Accountant designation. 2
Financial Advisor
Profit margin: 20.34 % – 25.18 %
Financial advisors provide financial advice and plans for their clients. These services can include investment management, insurance planning and estate planning. They earn money by charging either a flat fee or a commission on the products they sell.
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Financial advisors must obtain proper licensing from FINRA. This includes passing at least one licensing exam. After obtaining the proper license, you will need financial software for managing clients’ money and sources to acquire new clients.
Software as a Service
Average Profit Margin: 19,66%
Software as a Service allows software developers to create and deliver software to their customers via the Internet, rather than through software downloads. SaaS businesses can be very profitable. Software developers can produce a useful product and then sell it to businesses or consumers without much overhead.
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You need to have an idea for a product or plan that will solve a problem. You will need to either be an experienced software developer, or to have the funds to hire one. Then, you need to sell your product to consumers or businesses and continue to develop it to meet your clients’ needs.
Real Estate Rentals
Average Profit Margin: 6 or more
Real estate is a popular small business. Entrepreneurs can make money by renting out real estate. Everyone needs to live somewhere, so this is a good business. Start with one rental property, and then slowly add more as you grow. Or buy several properties and rent them out all at once. Some real estate businesses list their properties on popular short-term rentals platforms like Vrbo and Airbnb .
How much debt you owe on each property and how many you own will determine your profit margin. Profit margins are higher when you have more properties and more equity in each one.
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You will need money to buy a rental. To get a mortgage, you’ll need to put down at least 20%. You’ll then need to list your rental property on popular websites such as Zillow or your local newspaper. 3
E-Commerce Store
Average Profit Margin: 10%
Online stores can be anything from Amazon stores to digital downloads and courses. E-commerce platforms like Shopify and Wix make it easier than ever to create an online retail store. You don’t need any coding or website development experience. Profit margins can range from 5% up to 20% with an average of about 10%.
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You need a niche service or product to sell. Then you have to choose the platform where you want to sell it, whether that is your own website, Amazon, or another. You can build your own website by purchasing a domain name and setting up an e-commerce platform with Shopify or Wix. Market your website to the audience you want to reach to sell your service or product. 4
Tax Preparation Services
Average Profit Margin: 20,3%
The law requires that all businesses and consumers pay the appropriate tax on their income. This creates an excellent business opportunity. Tax preparation services can include advice and tax preparation. Tax preparation services can have profit margins that start at 20 percent or more.
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You need to have a good understanding of U.S. Tax Laws and financial statements. You will need to have access to tax preparation software in order to submit the appropriate IRS tax forms on behalf of clients.
Food Truck
Profit margin average: 7 to 8 percent
Food trucks are a great way to begin a new restaurant (or expand an existing restaurant). Food trucks are small businesses that provide mobile catering to communities and businesses. Food trucks can be used to expand and build a small business, whether it’s a breakfast like waffles or ethnic food, such as Mexican.
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You’ll first need to obtain a permit for food handling. You’ll need to create a menu and a niche for your food. You’ll also need a food truck and inventory, along with a marketing plan to reach out to communities and events. 5
The Bottom Line
It’s crucial for businesses that are just getting started to create a plan and only spend money on things they can’t live without. Utilizing your professional network and your own resources can make the difference in a business’s success. You can begin by buying an established business if you have the funds to do so.
It’s also important that small businesses clearly define their target market. It’s pointless to try to sell something to a market who doesn’t need it. You can grow your business by accurately marketing to your ideal customers and target market.
Always seek the advice of professionals, such as a business consultant, tax advisor, accountant or financial advisor when appropriate.
FAQs (Frequently Asked Questions)
How long will it take for a small company to become profitable?
In their first year, most businesses do not make a profit. It is because the business is still in its early stages of developing a product or service, and building brand recognition among their target market. A small business will typically take between 18-24 months to generate a profit. 6
What is the easiest way to start a business?
It is easier and more enjoyable to start a small business that you enjoy and are knowledgeable about. In the beginning, you will work non-stop on your small business. If you are passionate about it and have experience in it, you’ll find that you can endure.
