Accounting and Tax Firms Top List of Most Profitable Industries

Sageworks, a financial information company and the leader in the financial analysis of privately held companies, today announced the most profitable industries over the past 12 months. Based on pre-tax net profit margins for privately held companies*, industries with the best bottom lines include specialty service providers in accounting, law, health care and real estate industries, according to the summer 2017 ranking from Sageworks.

“Not all private companies are necessarily shooting for high profitability; maybe their industry is price sensitive and rely on volume for growth (like grocery stores) or maybe they are sinking profits back into the business for R&D (growth companies),” said Sageworks Analyst Libby Bierman.

“But in most instances, higher profitability is better, and the industries atop this list are getting more from their business investment than others.”

This year, accounting-related services (accounting, tax preparation, bookkeeping and payroll service companies) are the highest ranking, with net profits amounting to 18.4 percent of sales, on average for the 12 months ended June 30th, 2017.  Real-estate leasing companies and legal firms ranked second and third in profitability with a nearly 18 percent net profit margin. The average private U.S. company has a net profit margin of 8.9 percent.

“Some of the industries featured here are regulars on the Most Profitable list, especially those industries that are human-capital intensive. Many of the top performers – Accounting, Legal Services, Management Executives and some of the Real Estate industries – are service industries in which certifications and education requirements are barriers to entry,” explained Bierman. “Before firms can enter these lines of business they have to invest considerable time and money into degrees and training. It makes sense, then, that these industries can charge a premium for their specialized services. They also don’t have huge inventories or expensive equipment to purchase or maintain.”

“Obviously healthcare and dental practices do have to invest considerably in technology and supplies, but their services are inevitably in demand even during slow economic times, which reduces pressure on their profitability levels.”

Several of the top-profitability industries are also in the real estate family, whether they are lessors, services or appraisers. These industries may have higher profitability now due to the high sales growth in many construction-related industries, noted during the same period. “The higher sales volume, within reason, the faster they can cover fixed costs and boost profit levels,” said Bierman.

 

Net Profit Margin

Industry Code

18.4%

5412 - Accounting, Tax Preparation, Bookkeeping, and Payroll Services

17.9%

5311 - Lessors of Real Estate

17.4%

5411 - Legal Services

16.0%

5511 - Management of Companies and Enterprises

14.9%

5313 - Activities Related to Real Estate

14.8%

6212 - Offices of Dentists

14.3%

5312 - Offices of Real Estate Agents and Brokers

13.2%

2123 - Nonmetallic Mineral Mining and Quarrying

13.0%

6213 - Offices of Other Health Practitioners

12.4%

8131 - Religious Organizations

12.1%

6215 - Medical and Diagnostic Laboratories

12.1%

2372 - Land Subdivision

12.0%

5321 - Automotive Equipment Rental and Leasing

11.0%

4931 - Warehousing and Storage

10.8%

8122 - Death Care Services

10.6%

5419 - Other Professional, Scientific, and Technical Services

10.3%

5416 - Management, Scientific, and Technical Consulting Services

10.2%

5414 - Specialized Design Services

9.8%

6116 - Other Schools and Instruction

9.7%

4884 - Support Activities for Road Transportation

 

* 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.


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