Service-Based Firms Lead the Way in Growing Profits: Sageworks
Businesses that don’t require substantial upfront capital, such as accounting and law firms, are experiencing the most growth among private companies.
According to research from Sageworks Inc., private companies in the United States grew sales by approximately 9.7% in the period ended February 2013, about the same as in the period ended January 2013 and close to the 10.1% growth seen one year ago.
The top industries by profitability for the period tracked through February were:
- oil and gas extraction (24.1%)
- accounting, tax preparation, bookkeeping and payroll services (21.2%)
- legal services (19.6%)
- commercial and industrial machinery and equipment rental and leasing (18.5%)
- outpatient care centers (17.8%)
- lessors of real estate (16.5%)
- dental offices (16.5%)
The Raleigh, N.C.-research firm said in an analysis of the top industries by profitability, Sageworks identified several service-based industries with strong net profit margins. The average private company had a 7.6% net profit margin in the period ended February 2013, compared to 4.6% a year earlier, the data showed.
Sageworks analyst Libby Bierman said these companies don’t have to purchase inventories or invest in much equipment.
“For service-based companies like accounting firms and law firms, revenue dollars just have to cover payroll and overhead expenses, allowing these companies to achieve above-average margins,” Bierman said.
Sageworks analyst Brad Schaefer explained that accounting firms, which will be especially busy this time of year with the tax deadline in mid-April, have consistently high profit margins. However, even though the oil and gas industry posted high profits, it is the exception because it tends to require a huge amount of upfront investment, he noted.
“They have a deep understanding of their own financials, and they have maintained that success even through rough economic times,” Schaefer said of accounting firms. “This profitability is especially impressive when you consider the differences between the accounting industry and other sectors.”