To help out entrepreneurs, we've consolidated a list of the top industries for starting a business. Establishing a new company has enough difficulties, and choosing the right industry to go into plays a huge role in how easy it is to succeed.
The Best Industries to Start a Business
To come up with a ranking, our analysts compiled industry scores based on sales growth, net profit margin, debt/EBITDA, net profit growth and total sales. Strong positive trends across sales growth, net profit margin, net profit growth and total sales reflect strong industry conditions. Weaker debt/EBITDA ratios reflect a better ability of companies to be able to pay off debt.
Professional, scientific and technical services
- Sales growth: 3
- Net profit margin: 2
- Debt/EBITDA: 1
- Net profit growth: 8
Administrative support, waste management, and remediation services
- Sales growth: 2
- Net profit margin: 6
- Debt/EBITDA: 2
- Net profit growth: 3
- Sales growth: 1
- Net profit margin: 8
- Debt/EBITDA: 8
- Net profit growth: 1
- Sales growth: 8
- Net profit margin: 11
- Debt/EBITDA: 6
- Net profit growth: 2
Transportation and warehousing
- Sales growth: 5
- Net profit margin: 9
- Debt/EBITDA: 4
- Net profit growth: 7
The Worst Industries to Start a Business
The following industries scored amongst the worst out of 18 we examined. While these scores aren't intended to be a certain predictor for future performance, they do reflect the overall five-year historical health of each industry.
Agriculture, forestry, fishing and hunting
- Sales growth: 17
- Net profit margin: 17
- Debt/EBITDA: 12
- Net profit growth: 17
Arts, entertainment and recreation
- Sales growth: 14
- Net profit margin: 15
- Debt/EBITDA: 16
- Net profit growth: 13
- Sales growth: 6
- Net profit margin: 7
- Debt/EBITDA: 13
- Net profit growth: 16
- Sales growth: 16
- Net profit margin: 15
- Debt/EBITDA: 15
- Net profit growth: 9
- Sales growth: 13
- Net profit margin: 14
- Debt/EBITDA: 10
- Net profit growth: 10
Industry Performance Across 5 Years
We analyzed sales growth, net profit margin, debt/EBITDA and net profit growth over five years. Notable highlights include manufacturing and construction with net profit growths of 21.2% each. Agriculture, forestry, fishing and hunting, on the other hand, saw little growth across all areas, which would indicate these aren't the best industries to start a business in 2018.
|Rank||Industry||Sales Growth||Net Profit Margin||Debt / EBITDA||Net Profit Growth|
|4||Accommodation and Food Services||6.4%||4.0%||6.5%||18.3%|
|3||Administrative and Support and Waste Management and Remediation Services||11.4%||6.6%||3.3%||19.4%|
|17||Agriculture, Forestry, Fishing, and Hunting||4.2%||2.3%||5.8%||8.9%|
|13||Arts, Entertainment, and Recreation||5.8%||2.9%||6.7%||15.9%|
|14||Health Care and Social Assistance||7.7%||8.9%||3.7%||14.8%|
|5||Mining, Quarrying, and Oil and Gas Extraction||5.6%||4.3%||3.9%||18.1%|
|11||Other Services (Except Public Administration)||6.8%||7.1%||5.6%||17.1%|
|8||Professional, Scientific, and Technical Services||10.4%||10.4%||2.9%||17.8%|
|6||Real Estate and Rental and Leasing||7.0%||12.2%||9.9%||18.0%|
|7||Transportation and Warehousing||8.7%||5.1%||3.8%||17.9%|
The Top Industry in Each State
On top of analyzing macro trends, we also examined the total sales recognized by each industry in each state. The biggest industries by state gives a good indication as to what businesses tend to perform strongly in a given state. A considerable outlier is California, which has an extremely heavy emphasis on professional, scientific and technical services due to the prevalence of Silicon Valley.
|State||Biggest Industry (Total Sales 2017)||Total Sales (Millions)|
|California||Professional, Scientific, and Technical Services||$855.60|
|District of Columbia||Professional, Scientific, and Technical Services||$29.19|
|Nebraska||Professional, Scientific, and Technical Services||$48.16|
|New Hampshire||Retail Trade||$45.06|
|New Jersey||Retail Trade||$223.18|
|New Mexico||Retail Trade||$42.71|
|New York||Retail Trade||$423.74|
|North Carolina||Retail Trade||$219.16|
|North Dakota||Wholesale Trade||$23.22|
|Pennsylvania||Professional, Scientific, and Technical Services||$307.73|
|Rhode Island||Retail Trade||$22.04|
|South Carolina||Retail Trade||$103.00|
|South Dakota||Wholesale Trade||$25.60|
|Utah||Professional, Scientific, and Technical Services||$142.88|
|Washington||Professional, Scientific, and Technical Services||$171.65|
|West Virginia||Retail Trade||$38.74|
Industries Facing Financial Challenges
In addition, we analyzed data published by the Federal Reserve Bank of New York that illustrated level of financial difficulties felt by different industries. Financial challenges include paying off debt, paying operating wages and more. We'll note that in the finance and insurance space, 58% of surveyed firms reported no financial difficulties while other industries experienced no difficulties at an average of roughly 34% making finance and insurance the industry with the least financial difficulties.
|Industry||Firms Experiencing Financial Challenges|
|Travel & Leisure||73%|
|Insurance & Finance||42%|
|Healthcare & Education||64%|
|Professional services & real estate||61%|
|Business support and consumer services||67%|
How to Interpret the Data
While this is one view to take on the performance of an industry, it is by no means the entire picture. There is often a story behind the numbers that isn’t possible to comprehensively capture in a single snapshot. For example, retail trade looks to be the biggest industry by total sales volume in almost every state. However, retail trade also has one of the lowest net profit margins year over year.
In addition, just because a certain industry doesn't have a strong sales volume doesn't mean it is necessarily performing poorly. It could have a lower total sales volume because there are fewer businesses in the space. We tried to account for these factors in our scoring.
There are a variety of reasons that a certain industry could be performing or behaving the way it is. Hence, we ranked each industry by sales growth, net profit margin, debt/EBITDA and net profit growth to paint as complete a picture as possible. High sales growth is great, but a low net profit margin would indicate that expenditures are also high. A low debt/EBITDA is also appealing, but low sales growth would likely indicate a low revenue and low expenditure industry.
Before starting a business, it's therefore crucial to study each market more closely.
Our findings are based on data from the financial information company Sageworks. Although the data is exclusive and limited to the private companies within Sageworks's database, it lists a margin of error of around 0.77%, meaning the data has proven to be fairly accurate in the past. Since we're using the data to provide directional recommendations, we're convinced the data is more than accurate enough for our particular intentions. In addition, we also used data published by the Federal Reserve Bank of New York.
We also utilized data from S&P Market Intelligence to compile a view of total sales revenue recognized across each of these industries in 2017.
Sales Growth: Sales growth indicates whether the industry is growing in terms of revenue year over year. Volatile sales growth could be indicative of unpredictable revenue streams.
Net Profit Margin: Net profit margin is crucial, as it helps illustrate the actual profitability of each industry. For example, retail trade would appear to be the strongest industry if you were to only look at total sales but a closer look at the net profit margin would also tell you that the industry experiences high expenditures overall, which translates into one of the worst profit margins out of all the industries.
Debt/EBITDA: Debt/EBITDA indicates a industry's ability to pay off debt. The higher it goes, the more likely it is that the industry has a harder time paying off debt. This could be indicative of an industry's tendency to leverage debt that it can't pay off.
Net Profit Growth: Net profit growth is crucial to show whether the industry improves its profitability year over year. It is unlikely that industries would experience a massive change in this space as expenditures would all of a sudden need to drop or revenues really increase. However, this is another metric that would indicate steady growth.
Total Sales Volume: Total sales volume is helpful to give a directional sense of how large a given industry is. Total sales volume trends would also help illustrate how an industry performs over years.