Brian Hamilton, CEO of Sageworks, and Mark Jaffe, president of the Greater New York Chamber of Commerce, discussed the newest data and trends related to America's private companies during the "Analyzing America's Private Companies" forum held at the Harvard Club in New York City October 4, 2012.
At the summit, Hamilton talked about the sales growth, profitability, and the significance of private businesses in the United States. Since private companies drive significantly more than 50 percent of gross domestic product (GDP) and 65 percent of new job creation in the United States, private company financial performance is a gauge of the health of the wider US economy.
Jaffe outlined the current environment for small businesses, access to credit, and jobs.
Private Company Sales Growth Slowing
Average annual sales growth for private companies has slowed to around 5.4 percent currently, from nearly 11 percent in January, and from around 8 percent last year, according to the Sageworks Private Company Indicator, a real-time measure based on financial statements filed in the most recent three months.
Hamilton expressed concern about this slowdown's effect on the job market in 2013. If companies weren't hiring when sales growth was really strong, Hamilton asked, what will they do now that sales are slowing down?
"The biggest issue for businesses right now is that they don't know what's going to happen on major fiscal issues that affect their businesses", he said. Hamilton urged Washington to create clear-cut policies on fiscal issues. The quality of the policies, Hamilton explained, is less important than the urgency with which the policies are implemented; the less uncertainty, the better.
Private Company Profit Margins Expand
Private companies in 2012 continue to strengthen their net profit margins, which on an average annual basis are now more than triple their rates during the depths of the recession. And average margins are more than three percentage points higher than before the recession.
The average annual net profit margin for US private companies that filed financial statements within the past three months is 9.1 percent, according to the Sageworks Private Company Indicator. Annual net margins averaged around 3 percent in February 2010 and 5.8 percent in August 2007.
Hamilton warned that profit margins will inevitably slow down if sales continue to slow. However, he explained that this would be a short-term situation because business owners are likely to cut costs to keep their cash flow stable and food on their tables.
About the data:
Sageworks possesses a proprietary database of privately-held company financial statements aggregated by industry. Each day, approximately 1,000 of these financial statements are collected by Sageworks from accounting firms, banks, and credit unions through a cooperative data model with Sageworks' clients. The data is segmented and can be queried by 1,200 industry codes, seventy financial metrics, company size, and geographic location.
Source: October 4, 2012, Sageworks Press Release