Private Companies’ Results Hint at Economic Recovery – Sageworks CEO
While stock market gyrations often influence consumers’ sentiment about the U.S. economy, don’t overlook results at private companies as an indicator, says Sageworks CEO Brian Hamilton.
And signs from privately held companies indicate we are seeing a recovery, Hamilton said recently during an appearance on CNBC.
“The market’s up, it’s down,” he said. “But look at private company revenue. Keep your eyes on that. There are 27 million [privately held] businesses out there. We’ve got to watch what’s happening with them. Their revenue is up over the last 12 months; their net margins are up; their profits are up. Those are all great indicators.”
Sageworks, a financial information company, conducted an analysis of financial statements from private companies within all industries over the past few years and found that after significant declines in 2009, when revenue fell by almost 6 percent, revenue has increased. Private companies analyzed saw a 4 percent increase in revenue in 2010 and a nearly 7 percent gain so far this year, according to Sageworks’ financial statement analysis.
Similarly, net margins for these companies have also seen an uptick, increasing from 4.29 percent in 2009 to 6.61 percent this year so far, Sageworks’ data shows.
U.S. companies appear to be using cash flow from operations to fund their growth, rather than taking on new debt, Hamilton said. And they are also retiring a little debt, he said.
“We all know it’s harder to borrow right now,” he said. “Banks have tightened up. Only the best borrowers can borrow money, so growing without debt is a good thing.”
Hamilton expects that as business owners become more confident in the economic outlook, they’ll take a different approach.
“When people feel good and they can do a good projection, and they know what their cash flow’s going to be, they’ll definitely start borrowing,” he said. “And of course when the banks start loosening up — and there are signs of that right now. “
Hamilton has previously noted that while job creation is lagging, he’s confident this cycle will follow history and eventually result in new jobs. “It’s bad right now, but it will get better,” he said earlier this month. “Americans are good business people. We’re good at job creation; we’re great at company formation, or small business formation, so things should get better.”