The 15 most profitable business sectors
These sectors have the biggest profit margins, according to a new report.
Health care and real estate dominate a list of the country’s 15 most profitable privately-held businesses, according to a report released Wednesday by Sageworks, a financial information company.
That heavy representation – nearly half the list – reflects the growth in those areas. Universal healthcare has spawned an influx of insured patients while the housing and office markets have rebounded from its recession-era doldrums.
Sagework’s rankings are based on the company profit margins over the 12 months ending in June. The calculations exclude taxes and include owner compensation in excess of their market-rate salaries.
Also featured heavily on the list are various service-based industry sectors like accounting and legal services, largely because of their consistent demand for their services combined with relatively low operating costs, according to Sageworks analyst Jenna Weaver. “These kinds of businesses sell services from bookkeeping to legal advice to health care and do not need to purchase as many, if any, physical goods,” Weaver said in a statement.
(Note: Profit margins of companies that made last year’s list have been revised since their initial release).
1. Accounting, tax preparation, book keeping and payroll services
This industry sector tops the list with a net profit margin of 19.8%, an improvement over the revised 16.3% from last year. Like several other service-based industries on this list, accounting et al. make for consistently profitable businesses because they are generally in demand and can operate with fairly low overhead and equipment costs.
2. Legal services
Much like accounting, law firms and other legal services see constant demand from giant companies as well as the average Joe. They also boast relatively low operating costs because a large portion of spending goes toward maintaining a knowledgeable, specialized staff rather than investing in equipment or tools. After topping this list last year with a profit margin of 18.3%, this industry comes in second this year with a margin of 17.8%.
Tied 3. Oil and gas extraction
Oil and gas are booming in the U.S. thanks to increased production of crude oil and shale gas that is making the country less reliant on foreign imports. As such, this industry sector remained in third place with a profit margin that increased from 15.1% to 16.4%.
Tied 3. Commercial and industrial machinery and equipment rental and leasing
The profit margins for this industry jumped from 13.4% to 16.4% year over year, but the industry still ties for third on the 2014 list as growth in both home and industrial construction lifts demand for machinery and tools.
5. Dentist offices
Everyone goes to the dentist twice a year, right? Seriously, this is an industry with constant demand and, like other health care-related areas, it should see even greater demand as the number of insured patients continues to grow thanks to implementation of the Affordable Care Act. Profit margins for the most recent 12 months was 14.9%, compared to 12.7% last year.
Tied 6. Real estate leasing
This industry sector finds itself in a three-way tie in the list’s sixth spot with profit margins of 14.1%, up from 10.4% last year. As the economy improves, the housing market generally follows suit, meaning more business for landlords who, in turn, can hike up rental prices.
Tied 6. Doctors
Physicians move up the list this year into a three-way tie for sixth place with a profit margin of 14.1%, up from last year’s margin of 12.2%. Again, doctor visits are a necessary and regular expense for most of us, meaning consistent profits for this industry sector. And, yes, the growing insured population will only deepen the pool of doctors’ prospective patients.
Tied 6. Real estate agents and brokers
It’s not surprising to find another real estate-driven sector in this three-way tie for sixth place at 14.1%. Like landlords, real estate agents and brokers have also benefitted from the recent housing boom and increasing rental prices, hence the jump from margins of 11.6% over the previous year.
Tied 9. Other health practitioners
With a 12.6% net profit margin, this sector continues to prove that pretty much every corner of the health care industry is likely to turn a decent profit. This subsector posted a margin of 12.5% over the previous year.
Tied 9. Management companies
Privately-held management companies and holding companies also saw a 12.6% profit margin after failing to crack the top-15 on Sageworks’ list last year.
11. Outpatient care centers
This was the only health sector on the Sageworks rankings to see a drop in its profit margin, falling from fourth to eleventh in the rankings. But, privately-operated outpatient care centers still recorded an 11.7% net profit margin, compared to a margin of 13.8% in the previous year, and data show that the number of outpatient visits continues to rise.
12. Other schools and instruction
It would stand to reason that an improved economy would mean higher profits for private schools and other educational institutions, despite generally high operational spending going toward instructional staff and maintenance costs. This sector posted a profit margin of 11.3% in the most recent year after failing to crack the top 15 last year.
13. Real estate-related activities
Again, the real estate market has bounced back from the burst housing bubble of 2007 and nearly all connected businesses have been reaping benefits. This ancillary sector cracked the Sageworks list this year with a profit margin of 10.8%
14. Death care services
Well, obviously. There’s no industry as morbidly consistent as death care services, which made it onto this year’s list with a net profit margin of 10.7%. What’s more, despite the lack of return customers (Sorry!), the growing U.S. population does technically make this a growth industry.
15. Mining support
Growth in the global mining industry has slowed of late, affecting this industry subsector, which saw its profit margin dip from 12% to 10.5%. However, support services, which include core sampling and geological surveying, clearly weren’t hit quite as hard as the rest of the industry because they have lower operating costs than mining operators that spend big on equipment and energy costs.
by Tom Huddleston, Jr.
Fortune Magazine- Finance