The Most Profitable Small Businesses

What was your Fiscal Year 2015 net pofit margin? Did you reach your projection? Are you solvent and able to manage your accounts payable, business and household? Were you able to buy useful and comprehensive medical and dental insurance?  Were you able to deposit $10 K  or more into your retirement account? Did you travel to some nice location during the year and reward yourself with a vacation?

If the answer to two or more of those questions is no,  I respectfully suggest that you think about your Freelance consulting venture.  If you were able to put $7500 into your retirement account but you’ve not taken a real vacation in 5 years,  it does not raise a red flag in my estimation.  But if you have trouble paying bills, you have only the cheapest health insurance available and you infrequently or never pay into your retirement fund,  then you need to devise a way to make more money.  One of your options may be not just to tweak your business model and engineer a pivot. You may need to go into another type of venture altogether, one with greater profit-making potential.

Take heed– Sageworks, a financial data service located in Raleigh, NC, analyzed the net profit margins of 16,000 small businesses that earned less than $10 million between September 2014 and August 2015.  The average net profit across all industries in that time period was  7.2%.

Note that this list of top performers consists almost entirely of Freelancer-friendly service industries.  Despite the challenges of selling services, especially intangible services,  to either B2B or B2C clients,  Sagework’s list demonstrates that it is possible  to make money as a self-employed service provider.

Some industries are more soloprenuer-Freelancer friendly than others.  Accountants/bookkeepers, real estate sellers, lawyers,  landlords,  health  practitioners (physical therapists, chiropractors, podiatrists, etc.), graphics/industrial designers and architects/(structural) engineers are all able to operate a one-person shop quite well, perhaps with a single employee to provide administrative help.  Physicians, I’m sorry to say,  can no longer maintain a solo practice in big cities.

Educational requirements and professional credentials pose a formidable barrier to entry for several of these high-yield business opportunities, with medicine, dentistry, law, architecture, engineering, chiropractic and accounting (CPA or certified financial analyst) leading the list.  In contrast, real estate sales requires only the right relationships,  a license to do business and no real selling skills if you are in a hot market.  If someone with a real estate broker’s license brings you into the business,  you can work under the umbrella of that person’s credential.

I confess that I look askance at the stated prospects for attorneys.  There have been many mergers between big law firms and as a result, many lay-offs. I’ve personally known a couple of lawyers who had a hard time finding employment and when it was obtained, the job was an assistant district attorney that pays maybe $50 K a year.

I’ve read about lawyers with degrees from Ivy League schools (UPenn and Columbia) saddled with six figure debt and no job.  I recently read about a young lady who sued her (accredited but undistinguished) law school,  claiming that the advertised post-grad job statistics are false and also charging that the career services department was useless. She lost her case,  but I suspect that her argument is valid nevertheless.

From a former employee of a very prestigious law firm who was let go four or five years ago (and started her own profitable boutique firm),  recent law school grads who were hired by prestigious firms over the past couple of years have been subjected to a shocking bait & switch game—from a law firm, no less!  An offer letter is sent, in which the new hire learns that s/he will not start the dream job for two years.  Oh, and the salary will be $20K less than was originally negotiated.

While some attorneys do quite well, like my friend, many  self-employed lawyers in solo or small enterprises struggle as the big firms shed employees. Welcome to the new normal. Below are the small businesses that in the U.S. that on average have the healthiest profit margins.

Thanks for reading,

Kim

Business                                                                                   Net profit margin

Accounting / Bookkeeping                                                             18.4%a

Real estate sales                                                                                15.2%

Lawyer’s office                                                                                   14.5%

Dentist’s office                                                                                  14.4%

Landlords                                                                                             14%

Health practioners (chiropractors, etc)                                      13.3%

Physican’s office                                                                                13%

Business or technical consulting                                                   12%

Graphic and industrial design                                                         11.4%

Administrative services (billing, etc.)                                           11.3%

Architectural / structural engineering services                          11%

Real estate oproperty services (landscaping,cleaning, etc.).  10.1%

 

 

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