Private Company Sales Growth Tumbles

Sales growth among a sample of private companies has dropped significantly year-over-year, according to Sageworks.
Marielle SegarraSeptember 25, 2013

Privately held company sales are growing at an annual rate of 3.8 percent in 2013, according to preliminary estimates from financial-information company Sageworks. That’s a steep drop from an increase of 9.4 percent in 2012 and 9.9 percent in 2011.

Sageworks analyst Libby Bierman says sales growth is probably just leveling out after bouncing back post-recession. “In 2011 and 2012 the economy started to swing in the more positive direction, and as a result, private companies saw their sales growing at pretty significant rates,” Bierman says. “I think what we’re seeing now in 2013 is maybe slightly decreased consumer demand, but also the difficulty of compounding growth on these larger baselines. It can be difficult, for example, for a private company to grow 10 percent year after year.”

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Even though the slowdown isn’t a complete surprise, Bierman says it’s not a good sign. “I think it makes some sense when you consider how long they’ve been growing at such high rates,” she says. “But it’s also not great news, especially for people who are still looking for jobs. Business owners will be even less likely to add to overhead and to take on new employees if their sales aren’t growing at the tremendous rates we’ve seen in the past.”

Bierman says private company sales growth is unlikely to increase significantly at this point, but it’s unclear whether it will stabilize or drop further.

Sageworks also found that accounts receivable days for private companies averaged 46 this year, after staying relatively stable at about 40 in 2012 and 2011. The jump is a continuation of a slow, upward trend, Bierman says. “I think what this indicates is that business owners are kind of expecting a new norm. Maybe in the past they expected to be paid within 30 days. They’re starting to expect that to creep out to 45, or in this case 46.” The increase in AR days is happening across industries, she says.

One possible silver lining for companies, Bierman says, is that net profit margin continued its upward climb, hitting 9.1 percent in 2013 (from 6.4 percent in 2012 and 4.6 percent in 2011). “While sales have not been growing as much as they did in the past, private companies are still very mindful of their expenses,” Bierman says. “They’ve done a very good job of making sure that at the end of the day, their financial statements will still lead to them [making a profit].”

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