What Do the Most Profitable Small Businesses Have in Common

 

Best-practices consulting is a field of consulting that looks at the most innovative firms in a given industry and extracts takeaways that other companies can use to improve their operations. It’s a form of business benchmarking in the sense that many of the takeaways involve management techniques and strategic goals rather than pure data-driven comparisons.

All of this makes this article in Forbes quite insightful. It illustrates the most profitable small businesses in the US and more importantly, shares some commonalities between them, and in the process underscores some ways to best optimize your firm’s financial management. In addition, some of these commonalities also act as a powerful incentive for firms to consider outsourced accounting services providers, as they provide “as needed” expertise in a way most in-house services can’t.

So let’s first look at the most profitable small businesses in the US. Naturally, it is unlikely you would have heard of them by name, so we’ll look at industries instead with the one caveat that most small businesses had under $10 million in annual revenue. And what’s the most profitable type of small business in the US? That would be certified public accountants, which have an average pretax profit margin of 17.1 percent. Second in line are wired communication carriers with a 10.1 percent margin. (Notice the yawning gap between number one and number two.)

The next question, therefore, is why are certified public accountants so disproportionately profitable? There are a few reasons. One, accountants – like other professional services firms – need smart, certified staff to thrive. As a result, industry expertise in certain areas – whether it’s budgeting, financial planning, or small business accounting - is concentrated within these businesses. Or as the founder of Sageworks, the consulting firm that commissioned the study noted, “industries which provide need-to-have solutions rather than nice-to-have solutions tend to do better.” And we can’t think of a solution that’s more “need-to-have” than effective financial management.

Secondly, professional services  services provider enjoy consistent demand. Regardless of the ebbs and flows of the economy, businesses still need to do their taxes, budget for the next fiscal year, and worry about payroll. That said, accountants may see spikes around tax time, but taken as a whole, the quantity of work nonetheless balances out and contributes to higher-than-normal profit margins. Because once again, due to ever-changing tax laws, government regulations, ongoing accounting activities, and the inherent nature of accounting and financial management is one of specialized knowledge. Thirdly, the article also notes that such firms have traditionally lower overhead as well. And it makes sense when you think about a typical professional service provider.

So what can we take away from these findings? First, if profit margins are a respectable metric of a firm’s effectiveness, small businesses who are overwhelmed by their accounting demands should strongly consider outsourcing the function. Knowledge matters, and small businesses, whenever possible, should boost the financial acumen of their staff. Lastly, small businesses should continue to strive for lean financial operations, greater efficiency, and low overhead.

Of course, these latter two takeaways – greater in-house financial skills and greater operational efficiency – are easier said than done. But by partnering with an outsourced accounting services provider, you can procure these skills on an as-needed basis and offload certain services to a trusted third party. It’s a win-win.

  • http://growthforce.com/ GrowthForce

    Not only does outsourcing financial processes like bookkeeping and accounting benefit the business by making sure the books are handled properly, the company gains the knowledge of an entire financial support team from the outsourced financial services firm. Instead of hiring one person in-house to handle the accounting, outsourcing to a firm gives the company access to multiple financial services professionals, at a set price each month.

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