I recently read a report published by Sageworks, the leading company in the financial analysis of privately held companies. Sageworks reviewed revenue growth and profit margins trends of privately held companies in the United States for the 12 months ended February 2013. Here are the facts:
- Revenue is growing at an annual rate of 9.7% as compared to a year earlier at 10.1%. Double digit growth, or close to it, is a sign that business is picking up.
- Net profit margins are also beginning to strengthen. While top-line revenue growth is strong, companies are in business to create profit and shareholder value. The average private company net profit margin for the year ended February 2013 was 7.6%, compared to 4.6% a year earlier, another positive sign.
Another article that I read, also based on a survey by Sageworks, analyzed the prospective hiring plans for the coming 12 months by privately held companies. Their research suggested that private businesses are reluctant to hire due to the uncertainty of the effects of ObamaCare, and other tax and regulatory laws. Here are the results of the survey:
- 52% of private companies are going to maintain their current number of employees
- 20% are going to increase their number of employees
- 20% are unsure of their plans
- 7% will reduce their number of employees
- 1% are planning on significantly increasing the number of employees
My synopsis of this information, as well as our experience with our clients, is that most activity is picking up and that companies have learned to accomplish more with less human resources. I have also noticed that while revenue is increasing and payroll expenses may be flat, other expenses are creeping up and squeezing the profit margin. If you refer back to my article written on February 25, 2013, we wrote that top performing firms in their respective industries performed 72% better than the worst companies in their industry group. My point here is that it doesn’t matter what industry you are in, learn your key performance indicators and what drives them to be more successful.