Profit Minded

Sales rates are plummeting again for small business

Small business growth is at its lowest since the recession, according to the financial information company Sageworks. An analysis of private companies with less than $5 million in annual sales reveals that these companies are seeing average sales growth of just 0.3 percent in 2013.

Among four sectors—construction, manufacturing, wholesale trade, and retail trade—private small construction companies are faring best, with year-to-date growth of 1.6 percent. Private small manufacturing firms saw negative growth (-2.9 percent) as did private wholesale trade (-4.7 percent) and private retail trade (-1.9 percent).

To be sure, 2013 rates are far healthier than they were at the recession’s depth in 2009 when small companies’ sales growth plummeted to between -6 and -14 percent. But in 2011 and 2012, businesses seemed to be recovering as the growth rates for all industries was better than 7 percent, and for those four sectors rates ranged from 5.9 percent to 12.8 percent. Sageworks Chairman Brian Hamilton calls the 2013 numbers “especially disturbing” and says “we’re rapidly approaching the tail end of the average expansionary period in the United States.”

Despite the sales slowdown, Sageworks reports that net profit margins are healthy at 10.3 percent (gross profit margins are 64.8 percent), but warns that these margins will be difficult to sustain if sales growth doesn’t increase. The data also bodes poorly for small business hiring, considering that most businesses were reluctant to hire even when their sales rates climbed up to 7 percent.

“If these companies weren’t consistently hiring new employees and taking on overhead when they were seeing double digit sales growth, what’s going to happen now that their rate of sales has cooled off?” Hamilton asks.

Sageworks aggregates data from financial statements from accounting firms, banks, and credit unions.

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