HOW DO YOU RANK ?

[Lee B]

Accounting Firms Rank As Most Profitable Profession

 

The Most Profitable Industries in 2016

Which industries are the most lucrative? The answer depends on how it’s measured, but based on pre-tax net profit margin, the top money-makers include specialty service providers in accounting, law, health care and real estate, according to the latest ranking from Sageworks, a financial information company.

Privately held accounting-related companies (accounting, tax preparation, bookkeeping and payroll service companies) are the most profitable, with net profit amounting to 18.3 percent of sales, on average, based on a financial-statement analysis for the 12 months ended June 30.  Legal services firms and real-estate leasing companies are tied for second and third in profitability, with average net profit margins of 17.4 percent. These industries often make the cut for Sageworks’ annual ranking.

“Some businesses tend to have healthier bottom lines by the very nature of the industries that they operate in,” said Sageworks analyst James Noe. He noted that many of the most profitable industries sell services rather than products, so their operations don’t require raw materials or other up-front costs that would wind up in the middle of their income statements and eat into the bottom line. “They don’t sell or produce finished goods,” he said. “They don’t make the tractors to sell to farmers or they don’t buy groceries to sell to consumers. In other words, you don’t need plastic to provide an audit for a company; it’s just mostly human capital that’s being utilized, and that lends to a high margin generally.”

Among privately held companies across all industries, the average net profit margin for the 12 months ended June 30 was 7.7 percent. Through its cooperative data model, Sageworks collects and aggregates financial statements for private companies from accounting firms, banks and credit unions. 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.

Five health-related industries made Sageworks’ top 15 list of most profitable industries in 2016: outpatient care centers, physicians, dentists, medical labs and a category of other health practitioners that includes chiropractors, optometrists, physical/speech/occupational therapists and non-physician mental health services providers.

Noe said that several industries tied to medical care and professional services have made Sageworks’ list of most profitable industries in recent years. Contributing factors could include more demand for health care from the aging baby boomer population and the fact that these specialized services require workers with advanced educational degrees who are able to garner higher fees.

“There are two ways to have a high profit margin,” he said. “You either have a heavy top line, or revenue, so you’ll still have a healthy bottom line despite whatever expenses you incur, or you just don’t have a lot of expenses in the middle of the income statement.”

Privately held companies offering tutoring, sports camps, driving lessons and a host of other instructional or educational services also made the list this year, with a net profit margin of 10.5 percent.

[SaraEA]

6 hours ago, cbslee said:

He noted that many of the most profitable industries sell services rather than products, so their operations don’t require raw materials or other up-front costs that would wind up in the middle of their income statements and eat into the bottom line.

But accounting practices do have to buy QBooks and tax prep software (and maybe asset management and tax planning modules) and continuing ed.  Those sure eat into the bottom line.