Few people know better than accountants what goes into a company's bottom line. So it's not too surprising that accounting and related fields top the list of the most profitable industries in the U.S.
Sageworks, a financial information company, recently found that accounting, tax preparation, bookkeeping and payroll services (NAICS 5412) generated more profit per dollar of sales, on average, than other U.S. industries, according to a financial statement analysis for the 12 months ended July 1.
Collectively, the accounting-related industries had an average net profit margin of 19.8 percent, which is more than double the average net profit margin for privately held companies overall.
Also at the top of the list of money-making industries were legal services (NAICS 5411), oil and gas extraction (NAICS 2111), and the rental or leasing of commercial and industrial machinery and equipment (NAICS 5324). Offices of dentists (NAICS 6212) rounded out the top five on the list of 15 most profitable industries, according to the financial statement analysis.
Sageworks analyst Jenna Weaver said the high profitability levels of accounting and related industries, as well as companies in the legal services field and several others on the broader list, seem to stem from low overhead costs, which makes sense given many of these professionals could start a business right out of their homes if need be. These types of businesses likely benefit from the fact that they don't require a lot of equipment or machinery to start or operate the business, and they don't have to store a lot of inventory on an ongoing basis. The legal services industry, for example, encompasses lawyers, title searchers and examiners, process servers and patent agents, and many of these types of businesses could be one- or two-person outfits. Once these businesses pay worker-related expenses, most of the leftover revenue could fall nearly directly to the net income line.
"The one thing people in these top two industries do need to have is expertise in their fields," Weaver said. "But because they are experts, they can sometimes charge more. Bringing in more money or limiting costs - both of those directly affect profitability."
Many of the industries are also tied to services that have generally consistent demand - dental care, medical care, funerals - regardless of the economy. That stability can benefit the bottom line, too, according to Weaver.
Others, such as real estate agents and brokers and real estate leasing companies, may be benefiting from an improvement in the real estate markets.
Weaver noted that profitability levels can vary over time. But whether you're looking for new clients, an investment or a new job, examining industries that make money is a good place to start. After all, money-losing businesses won't stay open long without an infusion of cash.
Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies' operational performance.