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Small Business

Most Profitable Industries for Small Businesses in 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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The economy is growing and the market is (mostly) thriving, so if you’ve been thinking of launching your own small business into the world, the time just might be right. But if you’re an entrepreneur, there can be such a thing as too many ideas. You might have a dozen or more brilliant concepts but perhaps you don’t know how profitable a certain industry is likely to be.

We’re here to help. Working with data from the U.S. Census Bureau, Bureau of Labor Statistics and software company Abrigo, we’ve pulled together the most profitable small business sectors. Whether you’re a small business owner interested in where you rank or an entrepreneur doing market research, there are some important insights ahead.

Most profitable industries

The Census Bureau ranks, among other things, profitability by sector in its Annual Survey of Entrepreneurs. Here are the top 10:

Industry

% businesses reporting profits

Finance and insurance

73.1

Professional, scientific and technical services

70.9

Management of companies and enterprises

70.5

Real estate and rental and leasing

66.9

Health care and social assistance

65.9

Construction

65.1

Wholesale trade

63.8

Administrative and support and waste management

63.5

Manufacturing

61.7

Retail trade; accommodation and food services (tied)

60

Source: U.S. Census Bureau 2016 Survey of Entrepreneurs

Management of companies and enterprises topped the list as well when Abrigo looked at the most profitable small businesses by net profit margin for a 12-month period ending April 30, 2019. Net profit margin is calculated by taking a small business’ revenue minus all expenses, including interest and taxes. As part of its services to the banking and accounting industry, Abrigo collects financial information on private companies that is then anonymized and aggregated by industry.

Industry

Net profit margin (%)

Management of companies and enterprises

22

Lessors of real estate

20.9

Financial investment activities

19.4

Commercial and industrial machinery and equipment rental and leasing

17.7

Accounting, tax preparation, bookkeeping and payroll services

17.7

Legal services

17.4

Agencies, brokerages and other insurance-related activities

16.4

Activities related to real estate

15.7

Offices of real estate agents and brokers

13.9

Support activities for mining

13.3

Source: Abrigo

Fastest-growing occupations

Clues may also be gleaned from the Bureau of Labor Statistics’ employment projections in the decade between 2016 and 2026. Clean energy and health fields dominate this list of the 10 fastest-growing occupations:

Occupation

% change in employment

Solar photovoltaic installers

104.9

Wind turbine service technicians

96.3

Home health aides

47.3

Personal care aides

38.6

Physician assistants

37.3

Nurse practitioners

36.1

Statisticians

33.8

Physical therapist assistants

31.0

Software developers, applications

30.7

Mathematicians

29.7

Source: Bureau of Labor Statistics

A closer look at top industries

Legal services, support activities for mining

Industries such as legal services and mining activities are regular fixtures on the list compiled by Abrigo and formerly Sageworks — Sageworks became part of Abrigo after it was acquired in 2018 — said Libby Sharman, Abrigo’s vice president of marketing. One reason for this is steep barriers to entry or high degrees of education required. Keeping the talent pool small benefits these businesses.

They also may not require steep overhead costs, added Sharman. In the case of businesses involved in support activities for mining such as exploration, “they’re not necessarily buying and maintaining all the heavy equipment necessary for running a mine,” she noted. Low overhead costs may also apply to some of the professional industries on the list, firms where their primary expense is the people they have in revenue-generating roles. Without much overhead to account for, “they can have a higher than average profit margin. So many of these industries, legal, accounting, there’s so much training [for business owners] to get to that point, their experience is going to be a calculable asset relative to other small businesses.”

Commercial and industrial machinery and equipment rental and leasing

“Construction may be a significant driver of profitability for this industry,” Sharman said. Smaller, local stores that provide machines to rent are more likely to be able to charge a slight premium because of their convenience or react quickly to the inventory needs of their local clientele. According to industry research firm IBISWorld, a key factor of success in this industry is the ability to control stock, so keep this in mind.

Construction equipment rental

This business provides construction equipment rentals to local contractors and property owners alike. Swift delivery and pick-up and a commitment to customer service will set you apart from larger competitors.

Medical equipment rental

Medical equipment rental businesses are also a part of this sector. Customers can rent everything from a hospital bed to a breast pump from these businesses.

Activities related to real estate

This has been one of the hottest growing sectors in the country recently, both for residential and commercial real estate (albeit one predicted to grow slightly slower in the near future, in the case of the latter). “These shops can also benefit from a low overhead since there is no inventory carrying costs or high-tech needs in the business,” Sharman said.

Under the umbrella of real estate are other types of work:

Property management

Property managers deal with the operation, control, and oversight of real estate, often acting as a go-between for landlords and tenants. The key to building a property management company is building a robust client base — so network, network, network.

Property appraisal

Property appraisal is generally an area of steady work (particularly if you live near a hot real estate market). Different areas and markets will often have different licensing needs, so make sure you do your research before beginning your training.

Accommodation and food services

This is the sector that includes short-term lodging. Aside from a place to sleep, these businesses might offer other perks like food services or recreational activities. Location is key for these businesses — hotels in touristy areas are always a good bet, but filling a niche in a less-trafficked locale means there’s less competition. U.S. travel bookings and revenue swelled to nearly $800 billion in 2017, according to Deloitte. Even though the accounting giant predicted growth in 2019 as well, it warned of challenges ahead. Here’s how small businesses can fit into this global business.

Bed and breakfasts

Bed and breakfasts aren’t always the cheapest option for accommodations, but they can offer travelers character and charm that chain hotels can’t compete with.

Resorts

Small, seasonal resorts occupy a similar niche to bed and breakfasts. “Given their smaller operating levels and boutique experience, they may be able to charge a premium to guests and avoid franchise fees, which protect their profit margin,” Sharman said.

Motels

Location and upkeep is everything — weary travelers are more likely to choose a well-maintained and attractive motel near major roads to turn in for the night.

Steps to getting started

But before you start a business, you’ll need to put in some leg work. We’ve rounded up four key steps that are essential to starting a business. Here’s what it takes to get your business off the ground.

1. Do your research

If you’re reading this article, congratulations. You’ve already started tip No.1: doing your research.

To start a business, you’ll need to do your homework — a lot of homework. That means thorough market and competitor research, as well as an analysis of financial feasibility, before you start making any business moves. You want a good answer to the question: “What does your business do, and what sets it apart from competitors?”

Some questions to get you started include:

  • What’s the demand for your product or service?
  • How big is your potential market?
  • Which competitors are already out there, and how many are there?
  • What do these consumers already pay for your product or service?

2. Make a plan

You won’t get very far without a well-researched, clear and solid business plan. This plan is a map — it will outline where your business is right now, where it’s going and how you will get there. If you’re not sure what a good business plan looks like, the U.S. Small Business Administration has a few templates and samples to help you get started. Most business plans will have the same information, but how you structure it will depend on how much detail you want to use.

3. Figure out financing

This is one of the most crucial steps to making a successful business. You need funding to grow, but you may not be able to get it as easily as an established venture. The first step is to figure out how much funding you need. That will determine where you get it from: if you’ll be self-funded, need to find investors, or apply for a loan. Your funding will obviously have an enormous impact on what your business will look like in the future, so it’s important to make figuring out how you’ll get capital one of your first steps.

4. Make it legal

This is not the most exciting part of starting a business, but everyone has to do it. You can make the process more painless by figuring out early what permits, licenses and forms you’ll need to fill out in order to become a business in the eyes of the law. Figuring out what paperwork you need early on in the process is one way to stay on top of things and make sure there aren’t any legal surprises later on.

The bottom line

No single factor will determine whether your small business is profitable. Decisions you make as a business owner, conditions in your particular city and in the country as a whole may affect the success of your enterprise. The important thing is to leverage your particular expertise and follow best practices for developing a solid business plan. These will help you weather the inevitable ups and downs of starting and running your own business.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Rockwood
Kate Rockwood |

Kate Rockwood is a writer at MagnifyMoney. You can email Kate here

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Banking

How Do ACH Payments Work?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Ever wonder what those little notations about ACH credits and debits in your banking statements mean? You’re not alone. As consumer spending habits have evolved, ACH payments have become an integral part of our financial lives — even if most people don’t understand what’s happening behind the scenes.

ACH is short for Automated Clearing House, a network and processing system that financial institutions use to transfer funds electronically. It’s been around since the mid-1970s, when it began facilitating direct deposits of paychecks and social security payments. The ACH now processes 25 billion electronic transactions each year, totalling $43 trillion. The system is overseen jointly by the Federal Reserve Board and the National Automated Clearing House Association (NACHA), which groups more than 10,000 member financial institutions.

“The ACH Network really does serve as the backbone for money movement in today’s economy,” says NACHA Senior Director & Group Manager Victoria Day. “It’s one of the few payment systems that has the ability to reach all U.S. bank accounts, so it provides real value to consumers and business, fintechs and financial institutions.”

Indeed, ACH is the foundation of today’s fintech app ecosystem, as funds transfer services (e.g. PayPal, Venmo, Zelle, Square Cash and Google Wallet) use it to process transactions linked to bank accounts.

How ACH transactions work

ACH Network transactions begin and end with banks. Though the originator of a transaction might be an individual or a company, ACH transactions require bank accounts at both ends. An ACH credit — say, a tax refund or a single bill payment by a consumer — pushes funds into the receiving account. An ACH debit — such as a consumer’s recurring monthly bill payment — automatically pulls money from the originating account.

The process sounds straightforward enough, until you consider the sheer volume of transactions that must be verified and securely processed. An Originating Depository Financial Institution, like your bank, aggregates transactions from all its customers and transmits them in batches at predetermined intervals to the ACH. The batches are processed by ACH and settled — during normal business hours — and then transmitted to each Receiving Depository Financial Institution, where transactions are finalized in the designated receiver’s bank account.

Until a few years ago, NACHA rules required each ACH credit transaction to be settled in one to two business days, and ACH debit transactions to be settled in one business day. However, in 2016 the ACH began offering Same Day ACH, an expedited option that increases the movement of funds between financial institutions from one to three times each day.

“There are times when a consumer or a business needs to send or receive money quickly,” notes Day, and Same Day ACH was designed to help facilitate that.

Benefits of ACH payments for banks and consumers

Safety and reliability are two of the top benefits of the ACH Network, says Day. But there are other advantages as well.

Benefits of ACH transfers for consumers:

  • No fees, typically: Most financial institutions don’t charge customers a fee for ACH transfers. The ACH Network is funded, primarily, by NACHA member financial institutions, who pay fees to cover the costs of operation.
  • Convenience: Paying bills by writing and mailing checks each month takes can take considerably more time and effort than online bill payments via ACH transfers. The ACH system lets consumers feel confident their payments will arrive on time, limiting the risk of late fees or damage to their credit ratings.

Benefits of ACH transfers for banks:

  • Same Day payday: In the past, financial institutions have profited little, if at all, from the ACH Network. The earnings situation has improved somewhat, however, with Same Day ACH. Banks receiving Same Day ACH credits on behalf of customers will be paid an interbank fee of $.052 per transaction by the originating financial institution.
  • New features for bank customers: Same Day ACH give banks new value propositions to include in their products and services for a new generation of consumers. That includes expedited bill pay, better P2P payment service, and cheaper wire service.

What’s the difference between ACH, wire transfers, and EFT?

ACH payments vs. EFT

There is some confusion when it comes to comparing ACH payments and electronic fund transfer (EFT) payments. That’s because various companies commonly refer to ACH payments as EFTs or EDIs (electronic data interchange). Here’s something else that probably doesn’t help: Because the ACH network is electronic, all ACH payments are EFTs, but not all EFT payments are ACH.

Here’s the deal: The banking industry thinks of EFTs as a general term for any method of transferring funds electronically from one bank account to another, including wire transfers, credit card payments and online purchases. Because the ACH Network is backed by the federal government, though, it boasts a higher level of security than other EFT options.

ACH payments vs. Wire Transfer

Both wire transfers and ACH transactions involve one financial institution sending funds to another electronically. However, wire transfers use a different network, Fedwire, and can move funds domestically and internationally with equal ease. (International ACH transfers, on the other hand, are more complicated.)

Speed is the great advantage of a wire transfer, which can send funds from one bank account to another instantly. For certain transactions where speed is essential — closing on a new home, for example — wire transfers may be a requirement. A wire transfer’s speed does come at a cost, though: wire transfer fees can range from $15 to $30 or more for domestic wire transfers and $35 to $45 or more for international ones.

Another caveat is that a wire transfer’s speed can sometimes be a vulnerability. Because the money moves instantly, this type of transfer is particularly appealing to criminals who might try to, say, scam home-buyers into wiring funds into the wrong account.

Payment typeProsCons
ACHMost secure, free of chargeSomewhat less speedy
EFTFacilitates online purchasesLess secure
Wire transferHigh speedFees, risk of outsider fraud

Examples of ACH payments

The 25 billion annual transactions handled by ACH covers a lot of ground, yet they tend to fall into a handful of general categories. Consumers use them for direct deposits of payroll earnings, tax refunds and government benefits, such as Social Security payments.

They are also used to pay taxes and bills, to make payments to individuals, and to move funds from one bank to another. Businesses use them to pay other businesses for goods and services.

Basically, you can use ACH to pay for just about anything that you might previously have paid for by paper check — only more quickly, reliably and securely.

The bottom line

ACH payments have radically changed the way we manage money, and are integrated into the modern fabric of how most of us receive and send funds. There are times, though, when ACH isn’t available — say, with many online stores — and you’ll be paying with a different type of ETF. And there are other times, still, when a wire transfer or money order might make more sense.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Rockwood
Kate Rockwood |

Kate Rockwood is a writer at MagnifyMoney. You can email Kate here

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Banking

Is Gifting a Prepaid Gift Card a Good Idea?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

There are plenty of people who still follow the time-honored practice of giving an envelope of cash as a gift when they have no idea what a friend or relation really wants. This is becoming increasingly rare, however, as many are going with prepaid gift cards instead. But what kind of prepaid card should you choose?

The global gift card market is expected to hit $750 billion in sales by 2026, according to Research and Markets. If the idea of slipping a few twenties into a birthday card doesn’t appeal to you, there are countless gift card options, all with their own pluses and minuses.

We’ve rounded up the advantages and disadvantages of each type of prepaid gift card. If you’d like to give a prepaid card as a gift, store-branded cards might be your best bet — if you know what kind of store your recipient prefers. If you don’t, a more generic credit card-branded prepaid gift card might be a better choice.

What’s the difference between a gift card and prepaid debit card?

When you think gift card, you probably think of a store-branded card — from Macy’s, Best Buy or L.L. Bean, for example — which are only valid at a specific retailer. Another option is a credit-branded gift card — from MasterCard, Visa, or AmericanExpress — that can be used anywhere those credit card brands are accepted. Both types carry a set amount of money, and most are not reloadable.

A prepaid debit card, meanwhile, is not commonly given as a gift, but usually used by people in a way similar to a checking account. They load money on the card or have others deposit funds on the card, and then they can use it like a regular debit card — although it’s not connected to a bank account. These cards can be given as gifts, but they’re not a great option because of their expense. Many of them have monthly charges as well as other fees for reloading the card or using the card to withdraw money from an ATM.

A prepaid gift card is often used as a stand-in for a checking account for people who would have a hard time getting a checking account with a bank. You can use them to pay for items in a store, and even have your paycheck or Social Security benefits deposited on them.

Here is a closer look at some pros and cons of prepaid store- and credit-branded cards, and prepaid debit cards.

Store gift cards

These are straightforward Starbucks, Old Navy, Amazon or you-name-it cards, branded by a single merchant and usable only for a prepaid amount of that merchant’s products.

Pros:

  • Recipients can choose what they want to buy.
  • They can maximize value by redeeming during sales.
  • People giving store cards save money on the cost of shipping products.
  • Typically, no purchase fee is charged.

Cons:

  • Redeemable at only one merchant.
  • Small balances are often left unused.
  • If the merchant goes out of business, the card may become useless.
  • If the recipient loses the card, the merchant might not replace it. However, some may give a replacement if you have proof of purchase and the card’s ID number.
  • If you bought the card off the rack, a scammer could have copied the gift card code with plans to steal any money loaded on the card.

Credit-network branded gift cards

Visa, MasterCard, Discover or American Express gift cards offer prepaid purchase values in varying amounts.

Pros:

  • These can usually can be used wherever the network-branded credit card is accepted.
  • Some of these cards can be reloaded with more money.

Cons:

  • There could be a small fee to buy and activate network cards.
  • If you bought the card off a rack, a scammer could have copied the gift card code with plans to steal any money loaded on the card.

Prepaid debit cards

These are not, primarily, gift cards and therefore are not subject to federal rules regulating gift cards, so users should beware. Like Visa, MasterCard, American Express and Discover prepaid gift cards, they are typically redeemable wherever network-branded credit cards are accepted. They are also often used more like debit cards because they can be reloaded with money, though unlike regular debit cards they are not connected to a bank account.

Pros:

  • Prepaid debit cards offer enough features to serve as a substitute for checking accounts for people whose banks might not allow them to open a checking or savings account.
  • Spending and ATM limits can be set for a teenager or college student to provide support within boundaries.
  • In some cases, you can set up direct deposit to the card.

Cons:

  • Many (but not all) prepaid debit cards charge high fees. For example, Green Dot (one of the biggest prepaid debit card companies) charges a $7.95 monthly fee unless you load at least $1,000 a month, and potentially as high as a $4.95 fee per reload.
  • Prepaid debit cards do not give you the chance to build credit history.

Tips for using a prepaid gift card effectively

Whether you’re in the market for retail gift cards, or Visa, MasterCard, Discover, or American Express gift cards, always read the fine print. And of course, you’ll want to make the best use of your prepaid gift card, whether you’re the giver or the recipient. Here are some ways to make that happen:

  • Buy the cards from a trustworthy source. Beware of buying a prepaid gift card from online auction sites; they could be fake or stolen.
  • Check the card. If the protective sticker or coding is damaged or scratched, don’t buy the card, or return it if you’ve already purchased the card or received it as a gift.
  • Keep the receipt. In case you lose the prepaid gift card, it’s a good idea to have the receipt and card ID number in case you need to replace the card.
  • Use the card quickly — gift cards are easy to forget about or lose.
  • Check the expiration date. By law, gift cards can’t expire for five years from the date they were issued.
  • Make a trade. If you get a prepaid gift card to a store where you don’t shop, there are websites that let you sell or trade your cards — just do your homework and make sure they’re legitimate.
  • Get all your money. So what to do in those cases where you just have a few dollars left on a prepaid gift card? In some states, you may be able to ask for the remaining balance in cash if it’s less than a certain amount.

The bottom line

All gift cards and prepaid debit cards have their advantages and disadvantages. The smart shopper who keeps this in mind, however, should be able to find a good deal. Still, it’s important to stay sharp even after making your purchase, given the abundance of fraudsters out there hoping to cheat the unwary.

One particularly popular current scam, surprisingly, involves draining the value from iTunes gift cards. After pitching a story about an old friend or relative in need of assistance, or the chance to secure a valuable prize in exchange for paying a fee, the scammer asks you to buy an iTunes card and give them the serial number — which they immediately use to drain the card’s cash value or sell the card online.

The quick takeaway? Never give your payment information or gift card information to a stranger. The important thing, whether you’re the gift-giver or recipient, is to make a prepaid gift card a present that can be enjoyed instead of a hassle.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Rockwood
Kate Rockwood |

Kate Rockwood is a writer at MagnifyMoney. You can email Kate here