Fast Growth Companies Regaining Their Stride

Back to the future! Revenue growth targets for America's "Trendsetter" companies are at their highest—and worries about market demand at their lowest—in more than three years, according to a new PricewaterhouseCoopers study. Disproportionate new hiring and capital investments are planned by the fastest growers—suggesting that if others can achieve a threshold level of growth, more new jobs and greater investments will follow.

PricewaterhouseCoopers' "Trendsetter Barometer" interviewed
CEOs of 392 privately-held product and service companies identified in the media as the fastest growing U.S. businesses over the last five years. The surveyed companies range in size from approximately $5 million to $150 million in revenue/sales.

New Growth in Revenues, Jobs, and Investments Expected

CEOs of the nation's fastest growing private companies are aiming higher. In the first quarter they upped their projected corporate revenue growth for the next 12 months to an average of 20.2 percent, from 19.6 percent in the prior quarter. This is the first time their growth target has exceeded 20 percent since fourth quarter, 2000.

  • Service businesses expect 22 percent stronger growth than product sector companies—22.0 percent, versus 18.1 percent, respectively.
  • Technology companies anticipate 14 percent higher growth than non-techs— 21.5 percent, versus 18.8 percent.

More of these same "Trendsetter" CEOs are planning workforce expansion over the same time horizon: 76 percent, up from 72 percent in the prior quarter. Anticipated is a net hiring increase of 8.1 percent, up from 7.1 percent estimated in the prior quarter.

Service and technology companies again show brighter prospects:

  • 81 percent of service businesses expect to expand their workforce, versus 70 percent of product companies. And, overall, service businesses are projecting job growth averaging 10.3 percent over the next 12 months; product companies anticipate an increase of 5.8 percent.
  • 81 percent of technology companies plan to add new workers, versus 71 percent of non-techs. Overall, technology companies project net workforce growth averaging 8.3 percent, versus 7.9 percent for non-techs.

There is a solid connection between job growth and revenue growth. Surveyed companies planning to add workers expect revenue gains averaging 22.5 percent over the next 12 months, versus 13.0 percent for those seeing no workforce expansion.

Plans for major new investments of capital are also on the rise for the next 12 months, but less so. Currently, 42 percent are planning new investments, up from 41 percent in the prior quarter. Spending is expected to average 11.4 percent of revenues, up from 11.0 percent.

  • Similar patterns of investing are planned by service and product sector companies.
  • However, 44 percent of technology businesses are planning major new investments, versus only 39 percent of non-techs. Investments by technology companies are expected to average 13.6 percent of revenues, versus 8.6 percent for non-techs.

As with hiring, there is a strong link between planned investments and revenue growth. Those expecting to make major new investments project 23.5 percent revenue growth over the next 12 months, compared to 17.8 percent for those without investment plans.

"Trendsetter" companies are budgeting increased spending in four key areas: new product development, cited by 43 percent; information technology, 42 percent; sales promotion, 39 percent; and advertising, 32 percent.

"It's encouraging to see this trifecta of expected growth in revenues, jobs and investments," said Paul Weaver, PricewaterhouseCoopers' global technology industry leader. "The business climate for these companies appears to be much improved, and producing some positive momentum. Viewed separately, service businesses may have a more upbeat view than product sector companies because of their inherently greater business flexibility—not having to navigate through as many complex capacity, overhead, inventory, export and energy issues. Also, technology companies may see a special advantage in accelerated depreciation allowances, designed to encourage businesses to go forward with capital spending projects this year, rather than wait."

Lack of Demand Still A Concern, But Lessening

Despite "Trendsetter" CEOs' increased revenue targets, hiring plans, and expected new investments, many still see potential roadblocks in their path over the next 12 months. Over half of those surveyed (52 percent) remain concerned about weak market demand—more of a worry among service companies, 58 percent, than product businesses, 48 percent. Concern was comparable among technology and non-tech companies.

Other worries include legislative and regulatory pressures, a distant second in importance, cited by 32 percent; profitability (30 percent); lack of skilled, trained workers (29 percent); and pressure for increased wages (27 percent).

"Hopefully we have finally passed the point where CEO skittishness is thwarting the recovery," said Weaver. "Although a bare majority remains concerned about softening demand, this is the smallest number since the fourth quarter of 2000."

You may like these other stories...

Federal judge tosses IRS lawsuitsBernie Becker of The Hill reported that a federal judge sided with the IRS on Thursday, tossing out two lawsuits filed against the tax agency over its improper scrutiny of Tea Party groups...
SEC, Big Four Chinese affiliates make progress in talks over audit documentsMichael Rapoport of the Wall Street Journal reported that the US Securities and Exchange Commission (SEC) and the Chinese affiliates of the Big Four...
Koskinen warns filing season could be most complicated yetImplementation of the Foreign Account Tax Compliance Act and the Affordable Care Act, combined with a tight budget and the possibility of Congress passing a late...

Already a member? log in here.

Upcoming CPE Webinars

Oct 30Many Excel users have a love-hate relationship with workbook links.
Nov 5Join CPA thought leader and peer reviewer Rob Cameron and learn ways to improve the outcome of your peer reviews while maximizing the value of your engagement workflow.
Nov 12This webcast presents basic principles of revenue recognition, including new ASU 2014-09 for the contract method. Also, CPAs in industries who want a refresher on revenue accounting standards will benefit.
Nov 18In this session Excel expert David Ringstrom, CPA tackles what to do when bad things happen to good spreadsheets.