:max_bytes(150000):strip_icc()/GettyImages-1035834404-a48f10a5c31d49289dee090ee16456b8.jpg "The 7 Most Profitable Small Businesses (1)")
Small businesses have always been the foundation of a growing economy. It’s no wonder the American Dream itself is often a vision of owning your own business and developing it into a successful venture. Perhaps the most important piece to a successful small business is planning your path before starting.
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.
Key Takeaways
- Anyone can start a small business with data, tools, and resources available to everyone.
- Starting a business in an industry you are knowledgeable about and enjoy increases your chances of success and decreases your chances of burnout.
- Profit margins will vary from industry to industry and even within each industry, depending on the particular product or service you offer.
- Most small businesses take 18-24 months or more before generating a profit.
- Always seek the advice of professionals when appropriate, including accountants, attorneys, financial advisors, and business consultants.
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:
| Industry | Net Profit Margin | Description |
|---|---|---|
| Banks | 31.31% to 32.61% | This includes both regional banks and money centers |
| Financial services | 8.87% to 32.33% | From accounting and bookkeeping, to asset management, investment banking, or brokerage services |
| Software | -10.36% to 29.04% | Includes internet software, entertainment software, and systems and application software |
| Real estate | -3.17% to 21.77% | From general real estate to real estate development, operations, services, and Real Estate Investment Trusts (REITs) |
| Health care | 2.42% to 16.64% | Health care information and technology, health care products, and support services |
| Homebuilding | 12.73% | Homebuilding and development |
| Restaurant/Dining | 12.63% | Retail restaurants and dining services |
| Insurance | 8.87% to 12.64% | General insurance, property and casualty insurance, and life insurance |
| Retail | 1.11% to 9.63% | Everything from automotive, building supplies, distributors, grocery and food, online retailers, and special retail lines |
In the table above, some of the industries have a range for the net profit margin, meaning that some sectors within that industry are more profitable than others. As a small business owner, you can use the average industry net profit margins to identify areas of opportunity.
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%
E-commerce stores range from retail stores selling products, Amazon stores, and even online stores that sell digital downloads or courses. Building an online retail store has never been easier than it is today due to e-commerce platforms such as Shopify and Wix. No coding or web development experience is needed. Profit margins will depend on the product or service you sell and can be anywhere from 5% to 20%, with an average of 10%.
How To Get Started
First, you need a niche product or service to sell, then you need to decide which platform you wish to sell on, such as your own website or Amazon. To build your own website, purchase a domain and set up your e-commerce store with a trusted platform such as Shopify or Wix. Then, market your website to your target audience to sell your product or service.
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% to8%
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.
Frequently Asked Questions (FAQs)
How long does it take a small business to profit?
Most businesses don’t make a profit during their first year of operation. This is because they are in the initial stages of product or service development, as well as building traction and brand recognition within their target market. It’s typical for a small business to take 18-24 months before generating a profit.
What is the easiest business to start?
The easiest and perhaps most enjoyable small business to start is one you like and in which you have expertise. You will be working on your business seemingly nonstop in the initial stages, and when you work on something you enjoy and are experienced in, it’s a lot easier to endure.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Stern School of Business. “Margins by Sector.”
IBISWorld. “IBISWorld Industry Report 54121c Accounting Services in the US.” Page 8.
NARPM. “Financial Benchmarks Guide.” Page 7.
Shopify. “6 Ways To Increase Profit Margin for Ecommerce Businesses.”
Upserve. “The Average Restaurant Profit Margin and How To Increase Yours.”
Freshbooks. “How Long Does It Take To Be Profitable? A Guide for Small Businesses.”
According to a report published by New York University, the following industries have the highest net profit margins:
- Banks: 31.31% to 32.61% [[1]]
- Financial services: 8.87% to 32.33% [[1]]
- Software: -10.36% to 29.04% [[1]]
- Real estate: -3.17% to 21.77% [[1]]
- Health care: 2.42% to 16.64% [[1]]
- Homebuilding: 12.73% [[1]]
- Restaurant/Dining: 12.63% [[1]]
- Insurance: 8.87% to 12.64% [[1]]
- Retail: 1.11% to 9.63% [[1]]
It's important to note that these profit margins are averages and may vary depending on the specific product or service offered within each industry.
Now, let's discuss the concepts mentioned in the article:
Small Business Planning
Planning is a crucial aspect of starting a successful small business. It involves creating a roadmap for your business, considering factors such as market size, competition, and average profitability for the industry you choose. By planning your path before starting, you increase your chances of success and reduce the risk of burnout [[1]].
Accounting and Bookkeeping Services
Accounting and bookkeeping services are essential for all businesses. These services include tasks such as bank account reconciliation, tax preparation, managing accounts payable and receivable, and financial statement preparation. Providing accounting and bookkeeping services to local small businesses can be a profitable venture, with an average profit margin of 16.5% [[1]].
Financial Advisor
Financial advisors provide advice and plans to clients in areas such as investment management, financial planning, insurance planning, and estate planning. They earn money through fixed fees, commission fees, or a combination of both. The average profit margin for financial advisors ranges from 20.34% to 25.18% [[1]].
Software as a Service (SaaS)
Software as a Service (SaaS) allows developers to create software and provide it to customers over the internet. SaaS companies can be highly profitable, as they can sell software products with little overhead. The average profit margin for SaaS businesses is 19.66% [[1]].
Real Estate Rentals
Buying and renting out real estate properties can be a profitable small business. The profit margin for real estate rentals can vary depending on factors such as the number of properties owned and the amount of equity in each property. On average, the profit margin for real estate rentals is 6% or more [[1]].
E-Commerce Store
E-commerce stores, including retail stores, Amazon stores, and online stores selling digital downloads or courses, offer opportunities for small businesses. With e-commerce platforms like Shopify and Wix, it has become easier than ever to start an online retail store. The average profit margin for e-commerce stores is 10% [[1]].
Tax Preparation Services
Tax preparation services are in demand as businesses and individuals are required to pay appropriate taxes. These services involve providing advice and preparation services for taxes. The profit margin for tax preparation services can start at 20.3% or more, depending on the fees charged [[1]].
Food Truck
Food trucks provide mobile food catering services and can be a great way to start a restaurant business. The profit margin for food trucks typically ranges from 7% to 8% [[1]].
Time to Profit for Small Businesses
Most small businesses take 18-24 months or more before generating a profit. This is because they are in the initial stages of product or service development and building traction and brand recognition within their target market [[1]].
Importance of Target Market and Professional Advice
It is crucial for small businesses to clearly understand their target market and ideal customer. Understanding the needs of the market helps businesses tailor their products or services and effectively market to their target audience. Additionally, seeking advice from professionals such as tax advisors, business consultants, accountants, or financial advisors can provide valuable guidance [[1]].
I hope this information helps you understand the most profitable small business types and the concepts discussed in the article. Let me know if you have any further questions!
