The first step to succeeding in small business is choosing the right type of business to launch. This depends largely on the current market and specific industry, but also includes factors like profit potential, loan availability, competition, and industry growth. To help you decide which specific business is best for you, we identified the 40 best businesses to start in 2018.
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The six criteria we used to identify the best businesses to start in 2018 are:
- Profit potential – This metric is comprised of the net profit margin, net profit growth, and debt to EBITDA ratio for each type of industry according to the North American Industry Classification System (NAICS). Profit potential represents how likely you are to make money in each business.
- SBA loan availability – The availability of loans is illustrated by the gross amount of SBA 7(a) loans granted to each type of business between 2010 and present. This represents access to capital and the likelihood of getting a loan to start your new small business.
- Minimum required education and training – This represents barriers to entry as it relates to your ability to develop the necessary skills. It is based on entry-level education, related work experience, and on-the-job training required for each business.
- Human resource costs – This metric is the median salary for a typical employee in each type of business in 2017. It represents how much you’ll have to pay new employees in order to start each kind of small business and what you should expect to pay as your business grows.
- Competition – Industry-specific competition was evaluated based on the number of existing businesses for each type of business in 2016. The greater the number of existing businesses in each industry, the higher the competition for new entrants.
- Business growth rate – The business growth rate is the expected growth of jobs in each occupation between 2016 and 2026. This is an indicator of the relevance and sustainability of each business between 2016 and 2026.
Read on for our list of the five best businesses to start in 2018 plus a complete ranking of the 40 businesses we considered. Check out our research methodology below to find out exactly how we ranked these businesses.
The five best businesses to start in 2018 are:
1. Landscaping Service
If you’re planning to start a business in 2018 but don’t want to worry about extensive degree requirements, licensing, or on-the-job training for employees, consider starting a landscaping service. In addition to having an extremely low barrier to entry, our number one pick ranked sixth for industry growth, with an 11 percent increase expected between 2016 and 2026. Landscaping services also ranked sixth for the availability of capital, having received over one billion in SBA 7(a) loans between 2010 and present.
2. Child Day Care Center
In the number two spot, child day care centers ranked highly for both the availability of small business loans and human resource costs. Child day care centers ranked second in the loan category, receiving almost four billion in SBA 7(a) loans between 2010 and present. The median annual salary of $22,290.00 for day care workers was also the lowest for all of the occupations we evaluated, making it extremely affordable to staff your new day care business.
3. Pet Spa
Pet salons rank third on our list of best businesses to start in 2018; the industry was also third for growth between 2016 and 2026 and is expected to grow by an impressive 22 percent over that time period. Plus, the non-veterinary pet care industry boasts the second lowest annual employee salary, making it more affordable for business owners to hire support staff and grow their company.
4. Roofing Company
Roofing companies earn the fourth place spot on our list, ranking well for competition, industry growth, barrier to entry, and profit margin. If you start a roofing company, expect a low barrier of entry—sixth overall—because roofers generally don’t require trade school and only moderate on-the-job training. Roofing jobs are also among the most sustainable of those we considered, as they ranked eighth for growth with an estimated increase of 11 percent between 2016 and 2026.
5. Courier, Messenger & Local Delivery Service
With the popularity of door-to-door services on the rise, courier, messenger, and other local delivery services are fifth on our list of the best businesses to start. Courier services ranked sixth for both competition and barrier to entry, which makes the industry one of the most accessible businesses we reviewed as part of the study. Plus, courier jobs are expected to grow 11 percent between 2016 and 2026, earning the business tenth highest for industry growth.
Overall Ranking of Best Businesses to Start in 2018
|2||Child Day Care Center|
|5||Courier, Messenger & Local Delivery|
|9||Beer, Wine, Liquor Store|
|11||Local General Freight Trucking Firm|
|13||Scenic & Sightseeing Tours|
|14||Health & Personal Care/Massage|
|15||Property Management Agency|
|16||Baked Goods Store|
|17||Home Painting Service|
|19||Automotive Repair Shop|
|20||Towing - Trucking|
|22||Data Host & Processor|
|23||Marketing Consulting Agency|
|24||Interior Design Studio|
|26||Nursery & Garden Center|
|27||Plumbing, Heating & Air Conditioning Repair|
|29||Graphic Design Studio|
|30||Used Merchandise Store|
|32||Digital + Quick Printing Store|
|35||Payroll Service Provider|
|37||New Single Family Home Contractor|
|39||HR Consulting Firm|
|40||Home & Garden Equipment Repair & Maintenance|
We based the ranking of the best businesses to start on ten metrics across six total categories. The businesses were ranked for each metric, and each of the six categories was given a weight based on its importance to starting a business. We then multiplied the weight for each metric by each business’s ranking to come up with the weighted ranking, adding the categories together to come up with an overall score, which was used to rank each business type.
The six categories we used to identify the five best businesses to start in 2018 are:
Profit Potential (20%)
The profit margin category is based on North American Industry Classification System (NAICS) industry classifications. To obtain a comprehensive understanding of profits, we considered three factors:
- Net profit margin – An industry’s net profit margins are the percentage of revenue that remains after operating expenses, interest, taxes and preferred stock dividends are deducted from an industry’s total revenue.
- Net profit growth – This value equals the difference in an industry’s net profits from one period to the next, divided by the net profit from the last period, and multiplied by 100 to obtain a percentage.
- Debt to EBITDA – This subcategory represents the ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) in each industry. The lower the debt to EBITDA ratio, the better an industry performs.
Original data were obtained from the U.S. Census Bureau and analyzed by Sageworks, a financial information company. Each NAICS industry was ranked for the three subcategories and rankings were averaged for each industry to obtain an overall profit margin rank. Each occupation we considered was then categorized by its NAICS classification and assigned the NAICS-specific ranking.
SBA Loan Availability (20%)
This metric is based on the gross amount of Small Business Administration (SBA) 7(a) loans granted by lending institutions to each type of business between 2010 and present. These data were obtained from the SBA’s 7(a) loan data report.
Minimum Required Education & Training (20%)
The minimum education and training necessary to start and work in each business are represented by three subcategories: typical entry-level education, necessary experience in a related occupation, and length of required on-the-job training. These data were obtained from the Bureau of Labor Statistics Occupational Outlook Handbook (OOH).
Each subcategory was assigned a point value and jobs were scored accordingly. Businesses requiring a bachelor’s degree or higher were given 40 points, those requiring specialized training or an associate’s degree earned 30 points, jobs needing a high school diploma or equivalent received 20 points, and occupations not requiring formal education got 10 points.
Human Resource Costs (15%)
Human resource capital is represented by the cost of hiring employees for each business based on the median annual employee salary in 2017. Average salaries were obtained from the Bureau of Labor Statistics OOH. Each of the industries we considered was then ranked based on these numbers, and the rankings of each subcategory were averaged to obtain an overall Human Resource Capital rank.
The amount of competition in each occupation or industry is represented by the number of jobs in the occupation in 2016. Data were taken from the Bureau of Labor Statistics OOH. Occupations with the highest number of jobs were ranked lowest for industry competition and vice versa.
This data could also be considered an indicator of the available labor pool. However, because the number represents the volume of existing jobs rather than qualified employees, it was used to represent competition.
Business Growth Rate (10%)
This metric represents the percentage by which jobs representative of each business are expected to increase in size between 2016 and 2026. Percentages were obtained from the Bureau of Labor Statistics OOH. Businesses with higher growth rates ranked higher than those with lower growth. According to the Bureau of Labor Statistics, the average growth rate for all occupations in the U.S. is 7 percent.
Bottom Line – Best Businesses to Start in 2018
Every business excels because of varying profit margins, barriers to entry, human resource costs, competition, and growth. We ranked 40 different businesses based on publicly available data from the Bureau of Labor Statistics, the Small Business Administration, and more. We then assigned a weight to each category, analyzed the data, and ranked the best businesses to start in 2018. If you’re thinking about starting a business, consider our list to help choose an industry!
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