typical brick buildings on a main street

Does everyone chase after the same prospects? Despite the Do Not Call list, live callers interrupt your dinner to pitch an electricity provider or let you know your computer is compromised. It gets worse when robo-calls tell you about lower credit card interest rates. We haven't even gotten to political calls as the 2020 election approaches. It drives you nuts. Now, imagine you are a business getting cold-called constantly every day! How can you find business prospects that aren't on everyone's radar?

How successful are small businesses?

As a financial professional, you are looking for successful business owners. Getting a business owner talking opens the door to doing business with the firm or the individual.

It's been said in many communities the majority of the local wealth is in the hands of the owners of privately held businesses. This ties into the logic that it's easier to accumulate wealth when you own a business vs. collecting a paycheck and working for someone else.

If it were that simple, everyone in America would quit their day jobs and start a business. Many do. According to the 2018 SBA Small Business Profile, there are 30.2 million small businesses in the US. But you've heard a lot fail. According to the SBA, about 80% survive their first year and about half survive five years or longer. Although this might imply half have failed by the five-year mark, sometimes numbers don't tell the whole story. For example, businesses get sold and merged.

Your office is likely a small scale model of the small business environment, since each producer needs to build a book to sustain a business. How many new hires make it to their one-year anniversary? After a few years, some financial professionals might have washed out, but some choose to retire. Others join teams or are recruited by the competition.

The lesson? Longevity is a good indicator of success. As an example, the Chamber of Commerce recognizes members at five and 10-year anniversaries. They are likely successful because they have passed the test of time.

Let's find some high profit-margin businesses

There are certain businesses in town that look like they are rolling in money. You know the owners – they have flashy cars and live in impressive homes. They are big donors to local charities. It's been said people look at how you dress, your car, your house, where you travel and your social circle as a way to determine how much money you've got. Think about business owners that fit that pattern.

Let's start with a baseline: According to AEI, reporting numbers from NYU's Stern School of Business, the average profit margin of US companies overall was 7.9%. These are big companies we are talking about! Here are a few examples of businesses likely to have high profit margins:

1. Jewelers. In 2010, National Jeweler Magazine showed 26% had gross profit margins of 48 to 52% and 29% had even higher margins.

2. Dry cleaners. Also in 2010, Brandongaille.com reported the average profit margin of dry cleaners is 150%. Enough said.

3. Auto body shops. According to careertrend.com, the profit margin on auto parts is 20-38% while on labor, it rises to 50 – 65%.

4. Florists. Maybe you don't buy flowers as often as you should. According to Real Flower Business the goal is to make a 70% profit before deducting overhead expenses.

5. HVAC contractors. Those air conditioning folks seek to make a gross profit of 45% on equipment, 19% on labor.

6. Funeral homes. According to bizfluent.com, the average gross profit margin for the industry overall was 62.5% in 2010. Smaller independent funeral homes might be at the 10-20% level.

7. Landscapers. According to lawnandlandscape.com, the gross profit margin needs to be around 45 – 50% to make a good living.

These examples deal with numbers. Your area likely has other businesses that do quite well including title companies, home inspectors and junkyards. Are they on anyone's radar? Probably not.

Most profitable businesses by industry sector

Everything gets measured. Magazines and service companies often rank the most profitable businesses to start. From a financial professional's point of view, established companies in these sectors make great prospects. Here's a selection of a few from Shopkeep.com:

Where does fast food stand?

You see enough places to get burgers, sandwiches or pizza on your way to work. Do they make good money? Forbes ranked them by average sales volume per location:

Paying off your loans – another measure of success

How much money comes in the front door is one measure of success, but since it doesn't account for overhead, it might not tell the whole story. How about franchises with the lowest default rates on Small Business Association loans? There's data for that too, as reported by fitsmallbusiness.com:

Let's find some high volume businesses!

Some businesses don't target big ticket purchases. They sell essentials, things people buy regularly or buy in a hurry. Here are some examples:

1. Car washes. When did they cross the $10.00 threshold? You wait in a slow-moving line to hand over your money. Sometimes you operate the vacuum yourself. One day, I stood behind someone from a car wash making a cash deposit at the bank. It was eye opening.

2. Gas stations. Bizfluent.com reports out of 150,000 gas stations in the US, 123,000 also have convenience stores.

3. Liquor stores. There are some purchases people make regardless of the condition of the economy. That's a clue there's money to be made. Seventeen out of 50 US states control the sale of liquor through some form of their own monopoly.

4. Laundromats. They can be a good business, requiring little day-to-day attention from the owner, but location is a factor.

5. Convenience stores. People will pay a premium to get what they want quickly. These stores often sell tobacco products and sandwiches too.

6. Truck stops. Warren Buffet's Berkshire Hathaway bought a stake in Pilot Flying J in 2017. Something to think about.

Let's find some services billed on an hourly basis

If you own a home or car, you are familiar with labor costs when you need a job done. The contractor sits down with you, discusses materials and labor, presenting an estimated or final bill. Labor is billed at an hourly rate. Do you know if the person doing the work is actually paid the same rate?

1. Auto mechanics. AAA reports labor is often billed between $ 47 – $215 per hour.

2. Electricians. According to homeguide.com, electricians might charge $ 40 – 100.00 per hour.

3. Plumbers. Improvenet.com indicates plumbers charge on average between $ 45 – 150.00/hour.

How will I find the "invisible rich"?

As an agent or advisor, you know how to search online for businesses or professionals in specific fields. There are online sites that can easily help you build a list of local businesses.

Always remember three rules when doing internet research to identify prospects:

Respect legal and privacy notices.
Only use sites for the purpose originally intended by the site.
Obtain permission from your manager or compliance officer before starting internet based prospect research.

Websites like manta.com (and others) have lots of useful information about specific businesses. Once you locate a profile for the business you have in mind, you should be able to learn the number of employees, years in business, approximate annual revenue and the names of senior officers or owners. Basic information on Manta is usually free.

Regardless if you are looking for companies or individuals, these tips should get you away from the lists many people are buying and into the realm of the "invisible rich."

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, "Captivating the Wealthy Investor" can be found on Amazon.

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The invisible rich: Finding prospects others are missing

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