Entrepreneurs dream and start businesses for a variety of reasons. Some hate the jobs they find themselves in, while others don’t like the politics of a big office environment. But most would agree that the lure of freedom and flexibility were big motivating factors.
Regardless of the reason behind their decision, one criterion is more critical than any other: they want to earn money and provide for their families. While it’s easy to get distracted chasing customers, increasing top-line revenue, and expanding facilities, simple business fundamentals (profits and cash flow) determine whether the entrepreneur’s dream will ultimately last or turn into a nightmare.
It’s nearly impossible to predict the success and financial health of a business by looking at the number of employees, the look of the website, the size of the office, or the resume of the owner. Most of us would assume that the only way to really know is to get a copy and read the financial statements. While this is a great idea and a worthwhile exercise, there is also another easy way to narrow down your options. You can simply choose to start or buy one of the 10 most profitable companies, that is, a company that statistically has the highest probability of financial success.
Sounds simple, right? But how [exactly] Do you find out what businesses are on the list?
It is not very well known in the market, but in fact there are certain industry classifications that have a track record of high net profit margins and strong cash flow. There are also certain characteristics and financial metrics of these select businesses that exponentially improve their profitability. So much so, that these particular businesses are 5 to 10 times more likely to survive and thrive.
1. Consultants, experts and speakers
This industry includes business consultants, authors, coaches, therapists, psychologists, authors, and paid speakers. On average, these businesses enjoy high hourly rates, have no debt or inventory, and have very low overhead. The number of professionals in this area is growing rapidly every year and they consistently generate 25-35% net profit margins. Not bad for a business born from the experience of one person: the vast majority of these businesses employ less than 3 people.
2. Accounting and financial services
While this industry may seem boring (accounting, payroll, tax compliance, accounting advice and software, advisory services, financial/investment advice, etc.), these professionals become much more interesting when they’re standing on their wallets. These companies tend to have the longest customer relationships (since most people perceive a high inherent risk in switching to a new provider), and thus the lowest churn rate and lowest cost to purchase. acquire and retain customers. They enjoy a profit of around 23-26%, they have enormous pricing power, and their services are considered essential, not discretionary spending. In general, they also tend to have low operating expenses per customer and as a percentage of sales.
3. Legal specialists
Despite their reputation as sharks and bottom feeders, attorneys earn excellent profits and cash flow (on average 20-24% net profit margin). His success factors mirror those of his colleagues in accounting and financial services. Most clients are gained through WOM and referrals (keeping marketing costs low) and tend to stay with their advisor for the long term as there is a perceived risk/cost of changing attorneys. Lawyers are fantastic for generating repeat business and increasing sales. Some of the most profitable areas include DUI defense, criminal law, tax and estate planning, and divorce law.
4. Dentists – general and specialists
Dentists have three key operating advantages: they can often treat multiple patients simultaneously, they enjoy a high transaction dollar average (most of which are not covered by health care plans), and their operating costs are relatively low ( when divided by the total number of patient rooms). Annual maintenance services (cleaning and x-rays) produce high contribution margins, and dentists do a great job of convincing us that we need them on a regular basis. On average, they spend more than any other health provider on follow-ups and rebookings. Fortunately, the cost of this direct marketing is much lower than the cost of acquiring new patients and generates 18-22% profit for the practice.
5. Designers
No matter what they specialize in (structures, décor, their brand, high-end clothing and accessories), these professionals have a knack for making money, in fact around 16-19% of the bottom line each year. These professionals benefit greatly from high final prices and variable product costs and relatively low operating margins. Your greatest assets are your customer lists and your time. The biggest risk for those who are not as successful in this area is productivity, either because they don’t understand the time it takes to complete a job or because they don’t charge market rates for their time.
6. Medical specialists and veterinary medicine
It pays to specialize. The medical profession is relatively recession-proof. No matter what happens, people and pets tend to get sick and we rarely choose to stop seeking care and treatment. Surprisingly, highly discretionary services such as plastic surgery, Lasik eye surgery, gastric banding specialists, infertility treatment, and hair restoration are on the rise. These specialists can often charge outside of what is covered by public and private medical care (earning a profit of around 14-16%) and earn much more than their GP counterparts.
7. Specialized health and alternative medicine
As with traditional medicine, it pays to specialize. Mental health, podiatry, chiropractic, naturopathy, acupuncture, physical therapists, etc. enjoy 13-15% profits due to high average dollar transactions, repeat visits, low cost of goods sold, and low operating margins.
8. Retirement and elder care services
As the average population continues to age, there is increasing pressure on young families from both ends: the need to manage child care with a career AND the need to manage the transition of elderly parents to assisted living or nursing. full time care. As a result, placement services, retirement villages, aged care services, etc. they are growing and becoming more lucrative. Private services in particular can earn 12-14% before taxes.
9. Insurance and mortgage brokers
These businesses often cost very little to start and operate and earn their money through 2 distinct streams: the initial fee they earn for securing the deal, and ongoing annual advances (which can often grow up to 80% of their total income). ). While recent changes in many jurisdictions have reduced or delayed your down payments from banks and various institutions, ongoing passive income streams make these businesses profitable by an average of 11-14%. The perceived hassle of switching is high, so most retain customers for long periods of time and promote/refer to you regularly.
10. Online Businesses, Small Depository and Lending Institutions
The Internet has made it possible for anyone to set up shop and sell goods or services online with little or no experience and low overhead. While there are plenty of failed e-businesses out there, the ones that are making money are doing so on a massive scale. The most profitable ones (retail services and membership continuity programs) are earning upwards of $0.20-0.30 cents on the dollar each year in net profit, but examples of these are few and far between. On average, those who sell products and/or services should enjoy 11-14% in bottom line with no debt, low inventory, and a small investment in fixed assets. Specialized credit unions and private lenders also enjoy profit margins of around 10-13% due to low overheads and growing consumer mistrust of traditional banks.
From this list, we can draw several important conclusions. First Professional Services is a winner. From the list above, 8 out of 10 businesses fall into the professional services category. The main drivers of its profitability are consistent demand for services (despite economic ups and downs), low overhead, high contribution margins, and repeat business. Aside from law, specialized medicine, dentistry, and accounting, many of these professions also enjoy relatively low barriers to entry.
Most of the time, it pays to specialize. Businesses in niche areas can often set high prices, get high-value sales with large contribution margins, and generate repeat business and referrals. This lesson can also be easily extrapolated and applied to traditionally difficult or low-profit industries. Take, for example, the restaurant business or general trades like welding or electrical services. By becoming highly specialized, these businesses can directly influence the success and viability of their businesses.
And finally, size definitely matters. In the small to medium sized sector, economies of scale in most industries generate around $1 million in revenue, and this is especially pronounced in industries that require an initial investment in specialized fixed assets such as medical equipment, manufacturing and technology.