Private companies in the United States experienced more than 10 percent annual sales growth in the period ended March 2013, slightly above the previous period and similar to the growth rate of one year ago, according to the financial information company Sageworks.
Based on financial statements from the last six months ended March 2013, the average private company had a 7.3 percent net profit margin compared to 4.5 percent a year earlier.
While all four key sectors analyzed by Sageworks—construction, manufacturing, wholesale and retail— had positive year-over-year sales growth in the most recent period, the manufacturing and wholesale sectors are seeing their sales grow at a slower rate than a year ago.
In an industry analysis focusing on the construction sector, six construction-related industries were identified as high-growth industries in terms of the sales percent change, with residential construction and architectural, engineering, and related services leading the way.
“It looks as if construction is back to stay, at least for now,” said Sageworks chairman Brian Hamilton. “The real estate industry was the worst hit industry of the last recession and the last to rebound. The construction industry has grown at a very healthy rate for the past two years, which is encouraging. Since there are hundreds of thousands of construction companies in the United States, this month’s report validates that the construction rebound is not a flash in the pan.”
Hamilton discussed the outlook for private companies at an event Tuesday in New York, alongside ADP Small Business Services president Anish Rajparia.
“Privately held companies obviously constitute the vast majority of companies in the U.S., and they generate a lot of economic activity,” Hamilton said at the event. However, he noted that while their fundamental performance has been stronger since about the middle of 2010, hiring remains relatively weak. “This is the first time in 60 years where we’ve had this much economic growth without job creation,” he said.
Rajparia pointed out that small businesses that managed to weather the recession were the ones that have been hiring the most actively. “If they stayed in business, employment was the most resilient at small businesses with one to 19 employees,” he said. Small businesses with between 20 and 49 employees are also making a comeback in hiring. However, the overall employment picture has been relatively flat, with the most hiring taking place at small businesses with one to 19 employees.
Most of the businesses that are hiring are in the service sector, with 94 percent of the jobs added there.
“Why have some of the largest businesses not added employees?” Rajparia asked. “What we see at ADP is that some of the addition in employment is outside the U.S. economy, in India, the Philippines, Pakistan, in lower-cost economies. The service companies don’t have the ability to do that, but the goods-producing companies have the ability to do more leverage. That’s probably why the service companies are growing employment the fastest.”
The Affordable Care Act could have an effect on keeping small businesses from adding more full-time employees, however, he and Hamilton noted.
ADP sees four key challenges for small businesses: growing their business, managing cash flow and access to credit, attracting and retaining the best people, and complying with regulations. “Part of the productivity equation and part of the fast growth with steady employment over this period is a bit of the innovation that has come in each of these categories,” said Rajparia. For example, small businesses have been able to leverage social media and online job boards to help them find talent.
So far, crowdfunding and the JOBS Act have not had a significant impact on access to capital for small businesses, Hamilton acknowledged.
“The JOBS Act has been very topical, but it hasn’t really been manifested as law yet,” he said. “It’s been passed to the SEC and FINRA. We have not yet seen the impact of that yet. I don’t think anyone has yet.
“The whole link between lending, hiring and economic success for businesses is an opaque one, in our experience,” he added. “But here’s what I’m very hopeful on: You’ve got businesses that are great credit risks. They’ve been in business for 20 years, they have good ratios, and they get loans. You have got businesses that are not so great risks, and we don’t want them getting them money. They probably don’t need the money either, because they’re going to go out of business if they get in more debt. But there are businesses in between, and if you look at crowdsourcing, this movement I think is a positive one. There are businesses in between that might be a little too risky for a bank, but would be a good risk for a private investor. There’s hope in that. The market has good solutions. But will that mean more hiring and economic success? I’m a little bit torn on that.”
