High Profit Margin Businesses

Michael HooperBy Michael Hooper

Frank Sabatini, a longtime Topeka businessman, once told me that an entrepreneur should find a good business and then duplicate it in other markets. At one time, Sabatini owned more than 60 Pizza Hut restaurants.

Finding the right business to own is a challenge. Entrepreneurs should look for businesses that have the potential for high profit margins and develop a business plan that will generate sufficient revenue to accommodate a 10 percent net profit margin. This means if you do $500,000 in annual revenue, you will net $50,000 after paying all expenses. Warren Buffett’s Berkshire Hathaway, for example, has a net profit margin of 11.58 percent. Similarly, Westar Energy’s net margin is 13 percent.

High profit margins are necessary to insulate the business from losing money. What if the economy tanks or you lose customers? Can you still make enough money to break even? A high profit margin will help you survive the tough times and expand in good times.

With the help of my business friends, I have compiled a list of industries that have the potential to produce high profit margins in the future.

REAL ESTATE
Real estate sales are a great way for a person to work as an entrepreneur without much startup capital. If you can sell $5 million in real estate every year, you can make a decent living. If you have capital to invest, consider buying real estate and renting out housing units.

Jeff Huckabay went into real estate in 2009 after the closing of the Payless ShoeSource Distribution Center in Topeka. He works as a real estate agent for ReeseNichols, owns three rental houses and is remodeling his third house flip.

“I love real estate,” Huckabay said. “It has its ups and downs. But it’s getting better.”

TRANSPORTATION AND SHIPPING
From its beginning in 1854, Topeka has been a hub for transportation. BNSF Railway, UPS, FedEx and 30 trucking companies operate in Topeka.

A person who loves to drive can go far in this business. You could work for others or you could operate your own truck, be your own boss and run your own company. This is a capital intensive business. Net margin at UPS is 8.41 percent.

MONEY MANAGEMENT/ACCOUNTING AND TAX PREPARATION
his is a low capital investment business, meaning there is little to buy except desks, computers, software and office space. Money management, accounting and tax preparation all require specialized skills, education and licenses. Many Americans hate doing their tax returns. As a result, people who are good at tax preparation will always have a job, and could easily run their own business.

SELF-STORAGE BUSINESS
With steady demand for storage, Topeka has room for more competition in the self-storage space. Americans are shop-a-holics, they can’t keep all their stuff in their homes and must rent storage units. Self-storage units are high-margin businesses that require minimal maintenance. Public Storage, one of the largest operators of self-storage units in America and Europe, has a net profit margin of 53 percent—which is staggering.

STAFFING AND PAYROLL MANAGEMENT
This is a low capital investment but high profit margin business. Many companies use temporary staff and get labor from staffing companies. I once was part-owner of a staffing firm in Nebraska. Our business did $500,000 in sales in our first year, with a net profit of $50,000.

HEALTH CARE
Nurses, doctors and physical therapists are all in demand. Margins in health care are decent. About 70 percent of Americans are overweight; many suffer from diabetes and pain in their joints. Companies with a track record of helping people lose weight and strengthen their knees, hips and feet have a solid future.

HOME AND GARDEN
Kansans love to spend discretionary income on decks, outdoor patio spaces and water gardens. I see an opportunity for selling non-GMO organic seeds, flowers and vegetables that will go direct from the garden to the table. I have a friend who grows his own fruits, vegetables and honey; his urban garden is a virtual jungle of sunflowers, tomatoes, honey bees, butterflies and bat populations.

TECHNOLOGY
Computer experts are almost always in demand. I know several people who make a good living designing software, running information technology departments or servicing computer equipment. One challenge is staying on top of current trends and not letting your business fall behind.

PLUMBING, HEATING AND AIR CONDITIONING SERVICE AND REPAIR
This area offers opportunities for skilled professionals to earn a high income—either working for others or by starting a company.

Smart business people do their research. They make sure there is a market for their goods and services. They build in high margins to make sure they remain profitable and viable for the long term. They do what works and they do it all the time. Wash, rinse, repeat. Ca- Ching.