Whether you’re looking to turn your passion into a profession or were simply born with that innate, unshakeable spirit of an entrepreneur, there’s one thing that all aspiring business owners have in common. To make your big dream a long-term, sustainable reality, you have to figure out how to earn more revenue than you spend on business expenses.
Before you invest all your time, energy, and savings into a new business venture, we recommend checking out our list of 13 least profitable industries to small business owners to make sure that you’re choosing a business opportunity that gives you at least a fighting chance at earning a decent income.
Reconsider These Production and Manufacturing Possibilities
Unless you were born with a pure passion for manufacturing, we’re willing to bet you’d only be considering these potential business ventures for their profit potential—so go ahead and cross them off your list of money makers:
Oil + Gas Extraction
If you’ve ever caught an old-timey rerun of the Beverly Hillbillies, you likely still think of “striking oil” as the go-to metaphor for a business idea with huge profit potential.
With that in mind, you might be as surprised as we were to learn that oil and gas extraction is regularly cited as the single least profitable industry for small business owners. This stems mainly from the variability that comes with investing in this kind of business, with a market that can go from plentiful to desolate in a day’s time.
The lowering prices for crude oil and gas since 2014 doesn’t help this field, which, according to the most recent available data, posts an average pretax profit of -7.6%. So much for that big move to Beverly Hills!
Medical Equipment + Supplies Manufacturing
If you’ve ever read the fine print on your hospital bill after a surgery, illness, or injury, you’ve probably noticed the sky-high prices! $154 for a neck brace? $137 for an IV fluid bag? You may quickly find yourself thinking that manufacturing medical equipment and supplies would be a gold mine of a small business!
Sadly, this is a total misconception. In reality, the majority of that profit goes straight to the hospitals and insurance companies—not the wholesalers, who are left with an average pretax profit of less than 5%.
These Service Businesses Are So Not Worth It
Whether you’ve got a deeply ingrained desire to help people, or you’re just eager to capitalize on the so-called “service economy,” go ahead and take these service-based industries off your great business idea list.
Home Healthcare Services
Although there’s a huge need of care for elderly folks, many barriers prevent home healthcare services from becoming profitable businesses.
The main issues that these businesses face are the hard-line price limitations negotiated through Medicare and major insurance companies. At the same time, the emotional toll and relatively low pay associated with providing this kind of care result in high turnover and a shortage of workers in the home healthcare industry, which could make managing your home healthcare business a stressful and profitless endeavor.
Real Estate Services
Requiring a relatively low barrier to entry in terms of both capital and required training, businesses involved with providing real estate services—including not only real estate agents but also appraisers, title companies, loan brokers, and more—might appear to be a lucrative and worthwhile opportunity for aspiring small business owners.
However, keep in mind these serious downsides before launching a business in real estate services. Competition within the industry is fierce, with a small number of top realtors in each market controlling the vast majority of who does business with whom. And since revenue is almost exclusively commission based—with particularly small percentages going to loan brokers, appraisers, and the like—it can be difficult to build up the number of clients required to keep your business afloat.
To pursue a business offering real estate services such as property management, appraisals, inspections, title, or loan management, you must build key relationships at the start with successful and well-connected real estate agents, as these are the individuals most commonly making referrals between your business and your target customers.
Say “No, Thanks” to These Hopeless Hospitality Ventures
If you’ve always been naturally gifted at rolling out the welcome mat to show out of town visitors or house guests a good time, it’s natural to think that opening a business in the hospitality industry would be your cup of tea.
Unfortunately, when it comes to travel, leisure, and caring for others, not all business ideas are created equal. Here are a few less profitable business sectors that you’re probably best off avoiding.
Amusement + Recreation Services
“Let’s enjoy the finer things in life! I’ll grab my gym bag and head over to the fitness center! I’ll meet you at the golf club afterward!”
Many people see recreational services as a gold mine—a place where people can spend their extra money on services that improve their quality of life and free time. However, the fixed costs of operation, stiff competition, and high impact of economic ups and downs could leave you struggling to make ends meet.
If you decide to open a recreational business, just keep in mind that if or when your customers face a shortage of cash, your services will likely be the first to go.
Traveling Accommodations
For anyone with big dreams of moving or retiring to an exciting or scenic destination, the idea of opening a picture perfect inn, bed and breakfast, or small hotel might sound like an ideal small business venture.
In reality, though, travel accommodations businesses rarely match up with the carefree, cozy vibe that owners picture at the start. Hotel professionals are faced with high fixed costs along with stiff competition from low-priced chain hotels and sites like Airbnb, forcing many to sacrifice profits with bare-minimum pricing to maintain occupancy rates.
These factors and more leave independent inns and hotels with average pretax profits at a hollow 0.26%—hardly worth it for a gig that ultimately amounts to a whole lot of changing sheets and scrubbing toilets.
Retirement + Assisted Living Facilities
As the baby boomer generation moves into older age, demand for retirement, assisted living, and hospice facilities to care for and support this large aging population continues to rise.
Unfortunately, although gearing a small business toward the care of our older citizens might be a noble choice, it’s not necessarily a profitable one. High overhead, a shortage of nurses, and pricing controls put in place by Medicare and Medicaid leave most healthcare elderly facility businesses with a net profit margin of just 3.3%.
Before you decide to start a small business in this industry, consider whether the business venture you’re planning for will be profitable enough to provide for your own retirement.
Avoid These Precious but Profitless Retail Ventures
When you imagine small business ownership from days gone by, there’s almost nothing as truly quintessential as the classic Main Street storefront. Yet sadly, no other industry has been harder hit by the rise of the global online economy than independent, brick-and-mortar retail businesses.
Before you pursue one of these idyllic (yet ultimately profitless) retail small business ventures, it’s worth considering how reality stacks against that perfect picture in your head.
Furniture Stores
Spend just a few hours binge-watching episodes HGTV, and you might be tempted to turn your love of farmhouse tables or post-modern sideboards into your very own retail furniture enterprise. If you look at the dollars and cents, however, we think you’ll quickly decide to press pause on this business idea and go back to your regularly scheduled programming.
Furniture stores typically have incredibly high overhead, which pairs poorly with a notoriously low markup rate from wholesale to retail. Combine this with shipping costs, production delays, and the growing influence of online retailers like Wayfair, and you’ll quickly understand how the average furniture retailer winds up with pretax profits of a measly 3.3%.
Specialty Retailers
For every passion and personality under the sun, there’s potential for a different type specialty retail store. Fashion boutiques. Paper goods shops. Quaint Main Street storefronts peddling lovingly selected products for any hobby, interest, or niche you can think of.
Sadly, though, there’s a reason you’ve seen so many of your town’s Main Street retailers come and go over the years. High overhead costs along with impossible-to-beat pricing competition against big box stores and online retailers leave local specialty retail shops with almost no chance at profitability.
Have a handmade product you want to sell? Or are you still eager to curate your own collection of wholesale distributed goods? Opt for an e-commerce business model instead. It might not sound as charming as flipping the open sign on your own brick-and-mortar storefront, but when it comes to your bank account, you’re much better off.
Forget These Food and Beverage Flops
Who doesn’t love a good meal? Joining friends around the table to enjoy delicious treats is a favorite pastime for many of us. Yet even if you love choosing the best ingredients to make amazing specialties for your friends and family, the food and beverage industry becomes a little less glamorous once you’re trying to turn a profit.
Before you try turning your foodie and wine or beer snob tendencies into a business venture, consider whether the profit potential of these particular food and beverage sectors are going to earn you enough dough.
Grocery Stores
Do you love the idea of owning your own grocery store? Do you dream of being able to provide food to your customers at an affordable price and high quality?
Sadly, any company that specializes in the retail industry has a hard pill to swallow. The low entry barriers to this field, which leads to more and more competition, is what this industry lives off of, which is probably why the field has an average pretax profit of only 2.5%. And because grocery stores operate with perishable items that have to be carefully handled, maintaining profitability for an independent grocer can be especially tough.
Bakeries
If you have a passion for making breads, cakes, pastries, and all sorts of delicious treats, opening your own bakery probably sounds like a dream small business.
Sadly, high overhead costs and food regulations along with tough competition from retail food stores and larger scale franchise operations make it close to impossible to sustain a freestanding independent bakery.
Still not ready to give up the dream of making a living with sugar and flour? Consider a food truck setup or focusing on bespoke baked goods for weddings and other special occasions. Either option will let you minimize overhead while meeting your customer where they are.
Beverage Manufacturing
At some point today, every single person will open their fridge in search of a tasty beverage. At first glance, knowing the high demand for palatable beverages, you might be tempted to start your own distillery, winery, or soft-drink manufacturing business.
Unfortunately, though, you are not the only one who has seen this demand. There is no shortage of competitors in the beverage manufacturing industry, and smaller companies struggle to compete with the larger companies that can supply these drinks quickly and easily. This leaves the average pretax profit for small businesses in the beverage manufacturing industry at a disappointing 0.8%.
If you dream of owning your own brewery, winery, or other beverage manufacturing business, make sure you’re going in fully aware of the challenges and profit limitations you might face along the way.
Beer, Wine + Liquor Stores
In the United States, we have vastly different laws from state to state as it relates to alcohol consumption and distribution. And while the demand may be tempting for a person who wants to start a profitable business, the regulations placed on alcohol retailers can put a lot of pressure on your small business. Competing against other companies can be hard, since some have near monopolies in their field. All of this leads to a less than desirable average pretax profit of just 3.4%.
If you’re tempted to jump into this industry with your own winery or specialty liquor store, your best choice is to find a specific, niche product type to specialize in, to bring customers with those tastes directly to you.
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Building up a profitable small business venture is a challenging task no matter the industry you’re pursuing. To avoid setting yourself up for an even harder road, we’d suggest starting your business in an industry that has the best possible track record for success.
The post 13 Least Profitable Industries for Small Business Owners appeared first on Fundera Ledger.
from Fundera Ledger https://www.fundera.com/blog/least-profitable-industries
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