Get All Access for $5/mo

Looking for Stable Business Ideas? Here Are 12 Types of Companies With Healthy Cash Flow. Private companies in these fields tend to pay their bills on time.

By Tanya Benedicto Klich

Opinions expressed by Entrepreneur contributors are their own.

Shutterstock

Land subdivision and funeral businesses may not be the sexiest small-business ideas when compared to, let's say, a web startup or a local coffee shop. But private companies in these fields tend to have the healthiest cash flow, according to new data from Sageworks, a Raleigh, N.C.-based financial data company.

For entrepreneurs seeking new ventures, businesses with a track record of stability and solvency may be a good place to start. Sageworks used highest average current ratios to generate a ranking of 12 business types with healthy cash flow for the year ending Aug. 31, 2014. [See list below.]

Related: The Small-Business Guide to Getting the Cash You Need

Cash flow is a leading indicator of financial strength because if a company has sufficient cash on hand, it will likely meet its short-term obligations -- like accounts receivables and employee salaries -- on time.

Sageworks analyst Jenna Weaver says the businesses listed "have the ability to pay their bills and they tend to, on average, have positive cash flow." She adds that while these businesses aren't necessarily fun or flashy, understanding why certain industries or business models are more inclined toward solvency than others is useful for any entrepreneur.

Following land subdivision and death-care services, this year's ranking also includes grocery stores, real-estate businesses, clothing stores, liquor stores, gas stations, dry cleaning and laundry services, specialty-food stores, employment services, health and personal care stores, and investigation and security services.

Land-subdivision companies divide land into plots to make selling the property easier. Weaver explains that its top ranking may reflect the strong real estate/construction market recovery since 2009.

The rest of the results show themes: half of the list represented the retail sector. While giants like Walmart are known to operate with a low current ratio because of their ability to turn inventory quickly into cash, small private retailers may have difficulty predicting consumer behavior and may therefore stockpile inventory to meet any unexpected consumer demand. Weaver explains that the ability for these smaller establishments to then turn these inventory levels into receivables, and receivables into cash plays a big role. Also, she says a third of the industries on the list are service-related businesses, which usually have lower or no inventory needs.

While every industry operates on different business cycles and models, entrepreneurs brainstorming on stable business ideas should always keep solvency in mind.

Related: Time for a Bank Loan? What Lenders Are Looking For in Small-Business Owners.

"Often, when businesses fail, they fail because of their inability to manage these ratios and generate positive cash flow," Weaver says.

It's important to note that a current ratio that is too high is not always ideal. A company wants to keep enough cash or liquid assets available to be able to meet its short term debts, but it doesn't want to sit on too much cash or inventory, so that its assets are still being productive for the business.

Related: Launch Your Quest for Capital With Entrepreneur Bank Search

Click to Enlarge+
12 Types of Business With Healthy Cash Flow (Infographic)

Related: The Most Profitable Types of Small Businesses

Tanya Benedicto Klich

Data & Featured Lists Editor

Tanya Benedicto Klich is a data and lists editor at Entrepreneur.com.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

The Side Hustle He Started in His College Apartment Turned Into a $70,000-a-Month Income Stream — Then Earned Nearly $2 Million Last Year

Kyle Morrand and his college roommates loved playing retro video games — and the pastime would help launch his career.

Marketing

5 SEO Hacks to Help You Rank Fast

Discover the best SEO hacks you can use to rank fast and avoid waiting for months to see results.

Starting a Business

Inside the Exclusive Private Club Devoted to Food, Wine and the Arts

Barrett Wissman breaks down the passions and partnerships behind his latest venture Domus Artium Reserve.

Business News

Elon Musk Threatens to Ban Employees from Using Apple Products, Says Will Lock Devices in 'Cages'

The Tesla founder sounded off on X following Apple's 2024 Worldwide Developer Conference on Monday.

Collaboration

Watch Out for These 5 Consequences of Too Much Collaboration

Beware of the collaboration trap! Too much collaboration causes overload, and well-intentioned efforts to have broad collaboration can backfire.

Science & Technology

Why We Shouldn't Fear AI in Education (and How to Use It Effectively)

Facing resistance to new technologies in the educational process is nothing new, and AI is no exception. Yet, this powerful tool is set to overcome these challenges and revolutionize education, preparing students and professionals for a future of unparalleled efficiency and personalized learning.