If you’re thinking about starting a business, it’s important to understand exactly what you’re getting into. Today, one-third of startups fail within their first two years of business, according to recent research by the Small Business Association. To ensure you’re not part of this 33 percent, it’s important to make sure the industry that you’re getting into is seeing positive trends in the market.
A recent report by Sageworks, a financial information company, revealed the most and least profitable industries, using data collected over the past year. According to the report, service-based businesses that have little startup costs but require specialized training and niche services tend to fair well in today’s market. This includes accounting firms, law offices and real estate brokerages.
“These industries and the sector as a whole can often charge a premium for their services due to the special training and certifications necessary to enter the field. That high barrier to entry may keep out low-cost competitors,” explained Libby Bierman, an analyst at Sageworks.
However, on the other end of the spectrum, retailers and businesses in the food industry are struggling in sales, with grocery stores and farming seeing little, if any, growth. “Because of their volume based business model and competitive markets, margins tend to be smaller,” Bierman said. “Grocery stores and manufacturing companies are good examples. Oftentimes their goods may be considered commodities, and to charge extra for a loaf bread may drive consumers to a different store over time.”
So if you’re starting a business and wondering where to start, here are the five most and least profitable industries today.
Most profitable: Accounting, tax preparation, bookkeeping and payroll services
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If you’re not sure what type of business to start and you’re good with numbers, an accounting firm might be the way to go. In fact, over the past year, accounting, tax preparation, bookkeeping and payroll services have seen an 17.84 percent in sales growth. And that’s likely because of their low startup costs -- all you’re really paying for are employees, special training and some technology. It’s also a service-based business too, so you won’t be spending any money on inventory. Just make sure you’ve got some top-notch employees in order to build a reputable name for your business.
Most profitable: Legal services
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Like accounting, legal firms are another service-based industry that saw positive sales growth (16.89 percent) over the past year and have little startup costs -- mostly just employees with law degrees. While you might have to invest in some special employee training and education, legal firms can make large sums of money depending on the services they offer.
Most profitable: Management of companies and enterprises
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Management of companies and enterprises, which experienced a 16.75 percent sales growth in 2017, typically consists of small privately owned bank offices of holding companies that advise and assist other companies in making important financial, management and operational decisions. While the offices are fairly niche and offer specialized services with employees who have specific skill sets and training, these types of companies can make loads of money by charging high premiums for their services.
Most profitable: Offices of real estate agents and brokers
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While the real estate industry tends to be seeing an uptick in the market in terms of profitability -- with a 16.6 percent sales growth over the past year -- it’s still important to note this industry fluctuates. “This industry, unlike some of the other top profitability industries, may be more sensitive to market changes,” Bierman says. However, when the market is experiencing positive trends, real estate agents and brokers can make tremendous amounts of money from real estate sales.
Most profitable: Lessors of real estate
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Also known as a landlord, these people can make tons of money purchasing property and renting it out to tenants at higher market prices. And because a lot of people are turning to renting instead of buying, this is a great time to get into the business. Of course, you’ve got to have the resources, because if you’re buying real estate, startup costs are extremely high. However, it’s encouraging to know that over the past year, lessors of real estate experienced a 15.06 percent in sales growth.
Least profitable: Oil and gas extraction
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For the most part and compared to other years, gas prices have been fairly low throughout 2017, so firms in the oil and gas extraction industry saw a drop in sales of 4.24 percent. And with such market fluctuations, major competitors and incredibly high barriers to entry, it might not be the best move to get into this industry right now.
Least profitable: Beverage manufacturing
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According to Sageworks, this isn’t the first time beverage manufacturing has been on its list of the least profitable industries. Even though it covers both alcoholic and non-alcoholic drinks, with new technology, drink dispensaries such as soda fountains and the fact that people are becoming more health-conscious, beverage manufacturing continues to be on the decline, with a more than 1.49 percent drop in sales growth over the past year.
Whether due to major competition or high startup costs, which involve equipment, kitchen supplies and lots of overheard, commercial bakeries have been on the decline for some time now, according to Sageworks. Just over the past year they’ve seen 0.81 percent drop in sales growth.
Least profitable: Oilseed and grain farming
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Oilseed and grain farming, which consists of the production of important dietary items such as corn, wheat, rice and soy, has been pretty stagnant since 2012, increasing only by 1 percent in sales this year. While demand for these types of products seems like it'd be consistent, research suggests that the slow market might be due to poor weather conditions and changes in the exporting and importing industries.
Least profitable: Grocery stores
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With Amazon, FreshDirect and other online grocers, there’s barely a need for people to step into a grocery store today. And because of these major competitors and their ability to offer low prices compared to those of mom-and-pop shops, it’s not a great idea to try to get into this field, especially since it has only seen a 1.69 percent in sales growth over the past year.
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