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Private Companies See Sales Growing 

​Accounting Today, 02.26.2013

By Michael Cohn

 

Private companies across the U.S. continued to grow their sales and expand their net profit margins last month, according to a new report.

The report, from the financial information company Sageworks, found that credit risk at private companies also appears to be improving, with the average private company’s likelihood of default currently standing around 3 percent, compared to 4.6 percent a year ago. Overall, sales were strong in January, although they grew at a slower rate than a year ago, while net profit margins were above pre-recession levels.



“The state of private companies is fairly positive,” said Sageworks chairman Brian Hamilton. “Companies are making money, and they’ve got some cash flow. We are in an economic recovery, and the strong performance of private companies reflects this recovery. Of course the big problem right now is still jobs. These companies are not hiring as many people as they used to, which is troubling.”

Private construction companies continued to report higher sales growth now than a year ago, validating some of the positive news coming from the U.S. housing market.



“Residential building construction stood out as a high-growth industry in 2012, seeing a 15 percent increase in sales according to preliminary estimates,” said Sageworks analyst Tim McPeak. “After the massive swing from 2009 to 2010, private residential construction has continued to show signs of life. It remains to be seen if this growth stays strong in 2013, and we’ll continue to monitor the performance of home builders throughout the year.”



In contrast, sales at privately held manufacturers, retailers and wholesalers grew more slowly last month than they did a year ago. “Nevertheless, if you look at January 2013 compared to the previous month, sales in all three sectors look to be heading in the right direction,” Sageworks analyst Libby Bierman explained.



Sageworks releases a monthly report on the state of privately held companies in America. It includes metrics on the average U.S. privately held company, along with the performance of notable sectors and industries. It also features the debut of the private-company probability of default metric. The metric is based on the Business Credit Report, a probability of default model developed by Sageworks.



Private companies drive over 50 percent of GDP and 65 percent of new job creation in the United States, Sageworks noted. Private company financial performance as measured in this report is an essential piece, and gauge, of the overall U.S. economy.



Each monthly data point in the Private Company Report represents the average for all private companies in Sageworks’ database that had a financial statement end during the past six months.

Advice on how to improve small business loan chances



While the economy is showing some signs of returning to something closer to normal, it continues to be incredibly challenging for small businesses to get lending from financial institutions.

 

Because proper accounting practices build a strong foundation for business continuity and small business growth, many of the bank executives focused their advice on maintaining proper financial statements, and gaining a greater understanding of their industry's trends.

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“In my over 10 years of experience, I've seen a lot of small business owners that are great about knowing more “about their widget” (e.g., their individual business product/service) than anyone else, but often times loses focus over time with respect to the underlying financial aspects of the business, especially as the business grows.



"Their sole fixation on perfecting their business while neglecting core financials and business increases their risk of failure over time. I strongly advise that business owners partner with or hire people who understand the financials of the business – this could mean hiring an accountant, finance professional, etc.”



Other areas the executives stressed included cash flow, business capital and the importance of entrepreneurs' personal credit scores.