The Most Profitable Industries For Small Business in 2016

Accountants may have the perception of being “boring,” but being talented with numbers leads to a profitable business.

Accounting and tax services, a grouping that includes firms providing accounting, tax preparation, bookkeeping and payroll services, takes the top spot on the list of the most profitable type of small business in the U.S. with a generous 18.3 percent net profit margin alongside legal services and real-estate leasing companies that ranked tied for second and third at 17.4 percent, reports Sageworks, a financial data service that analyzed the net profit margin of over 16,000 private-company financial statements filed over the 12 months ended June 30, 2016.

Companies operating in these three industries are seeing average net profit margins greater than 17 percent, or more than double the private-company average of 7.7 percent for the same period.

Companies in the health care and real estate sectors are highly represented on the list. Five health care-related industries made the top 15 list, including outpatient care centers, dentists’ offices, physicians’ offices, medical laboratories and offices of other health practitioners, a category that includes physical therapists and mental health service providers. In the real estate sector, in addition to lessors of real estate, real estate agencies and companies engaged in activities related to real estate such as property management and appraisal services, also made the list.

What makes these industries profitable? They’re service industries driven by human capital.

“The most profitable industries are those in which the business model relies heavily on human capital among the business owners and professionals,” Sageworks analyst Libby Bierman noted in an analysis. “Their experience justifies larger margins than, for example, a retail store, so it’s no surprise that accounting and legal services, as well as several medical industries, are near the top of the list.”

“The presence of several real estate-related industries on the list is evidence that the buying and selling of properties continue at a high volume, though it may not be true in all geographies,” she added.

“For accounting, legal services and real estate, firms in those industries often have low overhead costs (little to no equipment or inventory) too, which helps boost the bottom line,” Bierman said.

Here’s the list of the 10 most profitable types of small businesses and their net profit margins:

  1. Accounting, Tax Preparation, Bookkeeping and Payroll Services (18.3%)
  2. Legal Services (17.4%)
  3. Lessors of Real Estate (17.4%)
  4. Outpatient Care Centers (15.9%)
  5. Offices of Real Estate Agents and Brokers (14.8%)
  6. Offices of Health Practitioners (14.2%)
  7. Offices of Dentists (14.1%)
  8. Specialized Design Services (12.8%)
  9. Automotive equipment Rental and Leasing (12.5%)
  10. Activities Related to Real Estate (12.3%)
  11. Warehousing and Storage (11.6%)
  12. Offices of Physicians (11.5%)
  13. Nonmetallic Mineral Mining and Quarrying (11.2%)
  14. Medical and Diagnostic Laboratories (11.1%)
  15. Other Schools and Instruction (10.5%)

Bill Ferguson

Bill Ferguson, a New Jersey-based communications professional with over 20 years of corporate communications and integrated marketing experience.