Entrepreneurs dream of and start firms for a variety of reasons. Some hate the jobs they are in, while others dislike the politics of a big office environment. But most would agree that the lure of choice and adaptability were huge motivating factors.
Regardless of the reason behind their decision, one criterion is more critical than any other: They want to make money and support their families. While it is easy to get puzzled by tracking customers, growing top-line revenue, and expanding premises, the simple business fundamentals – profit and cash flow – decide whether the entrepreneur’s dream will ultimately last or turn into a nightmare.
It is almost impossible to foretell the success and financial health of a business by looking at the number of employees, the look/feel of the website, the size of the office, or the resume of the owner. Most of us would assume that the only way to know, is to get a copy of and read the financial statements. While this is a great idea and valuable exercise, there is also another, easy way to narrow down your choices. You could simply choose to start or buy one of the Top 6 Most Profitable businesses – i.e. a risk that statistically has the highest probability of being financially successful.
Sounds straightforward, doesn’t it? But how [exactly] do you find out which businesses are on the list?
It is not widely known in the marketplace, but certain industry classifications have a track record of high net earnings margins and solid cash flow. There are also certain characteristics and financial metrics of these select businesses which exponentially improve their profitability. So much so, that these particular businesses are 5 to 10 times more likely to survive and thrive.
- Consultants, experts, and speakers
This industry comprises of business advisors, authors, coaches, therapists, psychologists, authors, and paid speakers. On average, these businesses enjoy high per-hour rates, carry no debt or inventory, and have very low fixed expenses. The number of professionals in this area is growing rapidly each year and they are consistently generating net profit margins of 25-35%. Not bad for a business that is borne out of one person’s expertise – the large bulk of these businesses employ less than 3 people.
- Accounting and financial services
While this industry may sound boring – bookkeeping, payroll, tax compliance, accounting advice and software, advisory services, financial/investment advice, etc – these practitioners become a whole lot more interesting when they are standing on their wallets. These businesses tend to have the longest client relationships (as most people perceive a huge risk inherent with switching to a new provider) and thus the lowest churn rate and the lowest cost to acquire and retain clients. They enjoy the profit of around 23-26%, have enormous pricing power, and their services are seen as must-haves, not discretionary spending. By and large, they also tend to have low operating expenses per client and as a percentage of sales.
- Legal specialists
Despite their reputation as sharks and bottom feeders, lawyers make an excellent profit and cash flow (on average 20-24% net profit margin). Their success factors mirror those of their accounting and financial services colleagues. Most clients are attained through WOM and referrals (keeping marketing costs low) and they tend to stay with their advisor over the long term as there is a perceived risk/cost to switching attorneys. Lawyers are fantastic at generating repeat business and up sales. Some of the most profitable areas include DUI defense, criminal law, tax and estate planning, and divorce law.
- Dentists – general and specialists
Dentists have three key operating advantages – they are often able to treat multiple patients simultaneously, they enjoy high average dollar transactions (most of which is not covered by health care plans) and their operating costs are relatively low (when divided by the total number of patients serviced). Yearly maintenance services (cleaning and x-rays) produce high contribution margins and dentists do a great job of convincing us we need them regularly. On average, they spend more than any other health provider on follow-ups and re-bookings. Fortunately, the cost of this direct marketing is much lower than the cost of acquiring new patients and produces returns of 18-22% for the practice.
No matter what they specialize in – structures, decor, your brand, high-end clothing, and accessories – these professionals have a flair for bringing in the money – in fact about 16-19% on the bottom line each year. These practitioners benefit greatly from high-end pricing and comparatively low variable product costs and operating margins. Their greatest assets are their customer lists and their time. The greatest risk for those who are not as thriving in this area is productivity – either not understanding the time involved to complete a job or not charging market rates for their time.
- Medical specialists and veterinary medicine
It pays to specialize. The medical profession is relatively recession-proof. No matter what, people and pets tend to get sick and we rarely opt to forgo seeking care and treatment. Surprisingly on the rise are highly discretionary services such as plastic surgery, Lasik eye surgery, lap band specialists, infertility treatment, and hair restoration. These specialists are often able to charge outside of what is covered by public and private health care (earning profit of around 14-16%) and they earn much more than their general medicine equivalents.