The most profitable business to start
QUESTION: I am looking to start my own small business and I would just like to know what the most profitable businesses to start in Jamaica are.
— Tanisha
BUSINESSWISE: Your question is simple and relevant but very difficult to answer. The reason is while I can easily point to some of the business types and industries that have been known to generate substantial profits, there are many different factors that will determine whether or not a start-up can achieve similar outcomes.
While I understand that it’s helpful to learn which businesses have been known to create significant wealth for owners and shareholders over time, it is still likely that if 10 people start one of the businesses on the list below, only one or two may succeed.
Because of this, I’ll also outline some of the key success factors and downsides to these business types.
The financial services sector is known to be one of the most lucrative business sectors overall — not just in this country, but worldwide. This sector includes banking, insurance, capital markets, and investment management, and so on.
As you can imagine, it can be very lucrative to trade in vast sums of money, typically belonging to other people.
BUSINESS BARRIERS
The financial services sector is in some ways highly regulated and has substantial barriers to entry, making it very difficult to start a business in this area. It requires tremendous capital, considerable infrastructure, experienced and qualified human resources who need accreditation and to be certified fit and proper.
Where many people have been able to break in, however, is the microfinancing market in which companies typically offer small loans to companies and individuals for short-term periods at what many consider high interest rates. What’s even more favourable for these companies is that customers repay weekly, giving them a steady and healthy flow of cash into the business.
If you are wondering why customers choose to borrow at higher interest rates, it’s because these companies typically lend faster, with less bureaucracy, easier approval and generally target the ‘small man and woman’ who’ve been neglected by big lenders over the years.
Although these businesses have great profit potential, there is also the potential for considerable loss if you don’t properly assess and manage risk, or have a high percentage of underperforming loans, or don’t have enough capital to lend, etc. Other points to consider are increased competition and the likelihood that a new and robust regulatory framework may be implemented soon.
Retail is another sector with major profit potential. In simple terms — the business of buying and selling. Bankers, tax officials and others who make it their business to know which businesses typically make the most money will agree that trading in goods can be very profitable.
From the wholesale business to hardware, to home furnishings and appliances, to human hair, etc, the business of sourcing goods at the lowest prices and reselling can often be more viable than manufacturing products and selling them.
There are myriad other reasons these businesses tend to be attractive — for example, they generate a lot of cash on a daily basis and the business is pretty simple to understand and execute. Find good suppliers, buy low, sell higher to make a profit and move the goods fast so you constantly turnover the cash.
Other compelling factors are the low barriers to entry, little if any regulations, no specialised training or certification needed, and it tends to be much easier and less volatile than creating products from scratch and selling them.
Construction also makes my list of high profit potential sectors, as does tourism and communications. Wealth potential aside, these sectors have more regulations, require more financial and other resources and greater specialised knowledge than many other sectors. For these reasons, the barriers to entry are higher for the average person.
While the list I outlined is by no means exhaustive, these are some of the main areas where there’s substantial money to be made in Jamaica.
GREAT NEED AND DEMAND
Armed with the information I provided, how should you move forward? The first order of business is to assess the common factors among the business types listed. Most of them are businesses that people can’t do without — the need is great and so is demand. They have steady, consistent and large volumes of cash moving through their business, as well as a sizeable customer base.
For some, automatic monthly payments or subscriptions is at the heart of their viable revenue models. The next thing you must do is research — review industry data from Statistical Institute of Jamaica and the Planning Institute of Jamaica. Review the performance of companies on the Jamaica Stock Exchange, and take note of which companies local investors and financiers gravitate towards. Next, I suggest you consider more than just profits — like your own passion, unique skills, emerging industries, trends that may open new opportunities, particularly in science and technology. Finally, search for and read my very first businesswise column 7 Essential Steps to Business Start Up published in this newspaper on January 27, 2013. One love!