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11 Most Profitable Small Businesses to Start
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When you’re starting a business, there’s a lot to take into consideration, like your personal interests and skills, and demand in the marketplace. But you should also consider profitability. Are you starting a business that can generate enough profits to support you? If it isn’t profitable, you won’t find yourself in business for very long.
We’ve compiled a list of the most profitable small businesses to guide your path into entrepreneurship.
11 most profitable small businesses
The following business ideas were chosen based on their low startup costs and barriers to entry. We focused on businesses with minimal expenses as these offer business owners a good chance of quickly generating profit.
Cleaning services are in high demand during the COVID-19 pandemic, as many companies prioritize sanitation and cleanliness. And that demand is fueling industry growth. The commercial cleaning market is predicted to grow 6% annually by 2026.
Generally, no office space is required to start a residential or commercial cleaning business, so startup costs can be kept relatively low. Special equipment might be required, like carpet cleaning equipment and vans to transport workers and equipment to the cleaning site. Rates for commercial cleaners vary, but the average hourly rate is $39, according to Thumbtack, a services marketplace.
Bookkeeping and accounting
If you have a knack for numbers, helping people manage their money can be a lucrative career path. Both bookkeeping and accounting businesses can be started with minimal overhead. To start, you might only need accounting or bookkeeping software, a computer, and a printer.
While startup costs are low, there are some barriers to entry. Clients may seek a certified public accountant (CPA), a designation awarded to professionals who meet state licensing requirements. Bookkeepers are not required to meet the same stringent standards, but clients will want to know that you have past experience and thorough knowledge of accounting software and rules. Here’s more on the differences between accountants and bookkeepers.
The accounting profession is expected to grow at an average annual rate of 4% through 2029, but bookkeeping is predicted to decline by 4% due to improvements in technology, according to the U.S. Bureau of Labor and Statistics.
People with experience in a specific area of business might find an easy transition to entrepreneurship by starting a business consulting company. Small businesses and nonprofits may bring on contractors to provide consulting services in areas like marketing and management rather than tackle those tasks in house. A management consultant has few startup costs, aside from their own computer, software and possible travel, making it one of the most profitable small businesses to start.
As many students across the U.S. remain in virtual classrooms, tutoring is in high demand. That trend may continue even when the pandemic ends as families work to counter the effects of learning loss. Tutoring opportunities exist for a wide range of grades and subjects. Students from preschool to college might benefit from the support of a tutor.
And unlike teaching, you don’t need a certain degree or credential to start tutoring. However, you might consider joining an established training organization like the National Tutoring Association (NTA) that offers certification and resources to support you and your business. Private tutoring from a student or teaching assistant earns an average of $25 per hour, according to TutorMe, an online tutoring platform. Tutors who are teachers or professors earn an average of $56 per hour.
The pandemic sparked an interest in home improvement services. An entrepreneur with experience in construction, interior design, or landscaping could turn a quick profit, without a lot of startup time or overhead costs. Though homeownership rates have been bumpy over time, a majority of Americans own their homes.
Consider providing specialized services that relate to your skills. For example, if you’re a woodworker, provide customer interior woodworking. If you’re good with a paintbrush, consider starting a painting business. With a knack for interior design, your business can help both in-person and virtual clients design their new house to feel like a home.
Budding entrepreneurs who have a love of fitness might recognize a unique opportunity to start a personal training business. Gym membership is down and members may not come flooding back to gyms even when the pandemic is over. Even if they do, there might be demand for personal — and virtual — training or even small group training.
Starting an at-home personal training business where you perform the training in your customer’s home comes with few startup costs — mostly equipment to take with you to sessions. There’s no degree requirement to become a personal trainer but you’ll need to pass a certification exam.
School art programs have often been scaled back because of budget cuts. This could mean an opportunity for an entrepreneur with skills and knowledge in art, music, or dance to fill the gap. Running an after-school art program or a summer program could be a quick way to create a profitable business if there is demand in your area.
Virtual assistant services
Do you have a knack for keeping everything organized? By providing virtual assistant services you can help business owners and other professionals with administrative tasks like booking travel, organizing appointments, and anything else a business owner needs.
The average virtual assistant rate is $15.96 per hour, according to PayScale, but if you have any area of specialty, you may be able to charge a higher rate.
Social media management
During the COVID-19 pandemic, more businesses have leaned on social media to communicate with their customers. Social media managers or specialists help businesses promote their services or updates through social media channels, like Facebook, Instagram and Twitter.
Specific skills aren’t required for starting a social media management business, but you should have knowledge of the different social media platforms and how best to use them. But this knowledge can pay well — the average freelance social media manager earns $24 per hour, according to employment marketplace ZipRecruiter.
With 85 million pet-owning U.S. households, there may be plenty of opportunities in pet care businesses such as dog walking or dog sitting. And cruising around outside with dogs can be a lucrative business — the average hourly rate for a self-employed dog walker is $28 per hour.
No special experience is required, but ideally, you’d love dogs and be knowledgeable about basic care requirements.
Are you well organized and have a passion for real estate? Starting a property management company can be a profitable business that requires very little startup costs. Average property management rates are 7%-10% of the monthly rent, according to Zillow, the home listing site.
Depending on your state, you may be required to obtain a real estate license, especially if you perform specific actions like negotiating a lease. Even if you’re not required to be licensed, it’s important to be knowledgeable in tenant and landlord laws.
How to measure small business profitability
We’ve likely all seen those headlines proclaiming that a new entrepreneur made $100,000 or more in their first year of business. While that’s initially eye catching and impressive, just looking at a business’s revenue won’t give you an idea of how successful it is. If that business owner had $99,000 worth of expenses, they’d have a profit of $1,000 — a less impressive profit.
There are a few different profit metrics that you can use to assess a business’s profitability. You can use these to assess a business’s profitability and to compare profitability between multiple businesses:
Your gross profit shows you the profit earned after subtracting related selling costs. On an income statement, that would be your revenue minus your cost of goods sold. If you sell $1,000 worth of books that cost you $500 to make, your gross profit would be $500.
The gross profit margin is calculated by dividing the gross profit by revenue to obtain a percentage value:
Gross Profit Margin= Gross Profit ÷ Revenue x 100
Using the above example, your gross profit margin would be 50% ($500 ÷ $1,000 x 100).
Gross profit margin is most helpful to look at the profitability of specific items or product lines.
The operating profit of a business is the amount remaining after subtracting the cost of goods sold and operating expenses from revenue. This gives you insight into how much the company made after all expenses, but before accounting for taxes and interest.
Operating profit = Gross profit – operating expenses
To get the operating profit margin, you’d use the formula:
Operating Profit Margin = Operating Profit ÷ Revenue x 100
The net profit is what a business earns after all expenses, interest and taxes have been subtracted from revenue. Because it takes into account all expenses, it’s the most accurate look at business profitability.
Net income = Operating profit – interest expense – tax expense
Like the other formulas, you can obtain the net profit margin by:
Net Profit Margin = Net Income ÷ Revenue x 100
Tips for choosing the right business idea
Ready to start your business? Here are four tips to help you choose the right business idea.
Consider what skills you already have
While not every business requires certification or a specialized degree, using your existing knowledge and skills for a business can help you get started faster. Can you build a business off of your prior work experience? Not only will that reduce how much you need to learn, but you might also have a network of people that might be eager to use your business when it’s started.
Understand the demand
Once you have ideas for what kind of business you want to start, it’s time to determine the demand. You may have a passion for one business idea but without demand, your business won’t generate a profit. It’s important to understand how much demand there is for your business idea and whether people will pay for the solution you’re offering.
Research the competition
If there’s a demand for your business idea, the odds are there’s already someone with a business similar to the one you want to start. Competition is a good indication that a market for your business exists. But you don’t want to start a business that is the exact same as another existing business. Take some time to research what competitor businesses offer. Then, figure out what it is you have to offer and how your idea is better.
Calculate startup costs
Though we’ve focused on low-cost businesses to start, there will still be some startup costs that you’ll incur to start your business. Get an estimate of those costs now and a plan for how you’ll pay them. With planning, you might be able to secure a startup loan to help with those expenses.
Create a business plan
With your idea more fully formed, it’s time to write a business plan, to ensure you have thought through important business details. A good business plan will help you foresee where your opportunities are and any potential roadblocks you may encounter on your path to starting your business. You’re excited to jump right into your new business, but taking the time to make sure it’s properly researched can save you time and money in the long run.