July 12, 2019
By Zoe Stutman
Starting a business is no easy feat; in fact, it can be quite daunting juggling a host of monumental decisions and tasks on top of separating yourself from the pack. However, while in the planning stage of establishing a startup, it is crucial to put much thought into the location of your business. LendingTree published a study that highlights this idea, proving that a business’s locality matters, maybe even more than you think.
The study by the national online loan marketplace ranked the U.S. metros with both the highest- and lowest-grossing businesses, analyzing various market- and area-specific rationales behind the successes and shortcomings of these locales. Researchers found that the top 10 U.S. metros with the highest percentage of profitable firms included Seattle, Lousiville (KY), Indianapolis, Portland (OR), Denver, Columbus (OH), Minneapolis, Milwaukee, Nashville and Charlotte (NC). With Seattle, Louisville, and Indianapolis dominating the charts, LendingTree analyzed these results, examining why these top metros were ideal places to launch a business.
Seattle topped the rankings, with nearly 71% of all businesses in this area reporting profits. According to Jeff Snell, the chairman of the International Business Broker Association, profits are up for small businesses across the United States. In fact, in the third quarter of 2017, Washington State saw an increase in the number of new businesses. However, what greatly influenced the profitability of these Seattle startups was Washington’s rapidly growing economy. With a growth rate of 5.8%, it quickly surpassed the national level of 3.4%.
Nearly 70% of businesses reported profits in Louisville. Businesses catering to the retail and restaurant sectors thrive in the market, especially during the spring, when Kentucky Derby season arrives. The annual event greatly bolsters the Louisville economy, reaping more than $127 million in revenue. Louisville also is home to United Parcel Service, which also happens to be the city’s largest employer.
Indianapolis reported nearly the same amount of grossing businesses with roughly 70% of companies profiting. However, it is important to note that despite the plethora of profitable firms, there are high healthcare costs for businesses. A RAND Corporation study found that prices paid for private outpatient care averaged 3.5 times what Medicare would have paid for the same services.
While these three metros boasted top grossing potential, other U.S. cities including Houston, Virginia Beach, and San Jose (CA), faced limited profitability among their businesses.
Houston had the largest share of businesses reporting a loss, with 23.4% of businesses there losing money. Home to some of the biggest energy corporations in the nation, including Exxon Mobil and Chevron, the city attracts a plethora of companies in the oil, gas and refinery sectors. The profits from these businesses are primarily responsible for Houston’s economy. When the energy industry faced financial slowdown over the past year, according to the Texas Workforce Commission, 300 jobs in the energy, exploration and production sectors were lost.
Virginia Beach also faced large business losses, with nearly 22% reported not making profits. This metro area is financially supported mainly by federal spending, as it contains several large-scale U.S. military bases. However, LendingTree reports that tourism could improve its profitability and create new business opportunities as a port city.
San Jose also faced minimal profitability, with 20.4% of firms reporting losses. While it is home to major tech companies, these startups tend to remain in a loss period for the first few years, despite investments and valuations.
For those searching for profitability as well as those bold and eager business launchers looking to start their new project, LendingTree suggests altering or adding a product and or service to the company’s capabilities, hiring contractors instead of employees and strategically boosting sales.
For comments, questions or concerns, please contact Dennis Kaiser