Most Profitable Industries for Small Businesses

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

Written By

Updated on Tuesday, May 21, 2019

iStock

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.

Do you have a question?