The Private Company Outlook: Sageworks, ADP discuss recent trends

Privately held companies continue to have strong fundamental performance in general, but hiring by them remains weak, especially considering how much economic activity has occurred since the recession, Sageworks Chairman Brian Hamilton said Tuesday.

“There’s no question the economy is perking along, but [the weak hiring] is one thing we can’t get through,” Hamilton said at The Private Company Outlook meeting in New York.

Private companies saw more than 10 percent annual sales growth in the period ended March 2013, slightly above the previous period and year earlier, according to Sageworks’ latest Private Company Report. Based on financial statements from the six months ended March 2013, the average private company had a 7.3 percent net profit margin compared to 4.5 percent a year earlier.

Historically, as margins have increased at private companies, they’ve invested in hiring and other ways to generate even more sales and profits, Hamilton said. But that doesn’t seem to be happening much now. A recent survey by Sageworks indicated that that the hiring outlook for private companies remains cautious. “It’s very odd that we have economic growth without the hiring,” he said.

“What is causing the lack of hiring? No one knows the answer,” Hamilton said. Looming public policy issues and divisive political discourse in Washington, D.C., probably don’t help, he said.

While all privately held companies aren’t small businesses, small businesses appear to have been playing an outsized role in the hiring that has occurred in recent years. 

Anish Rajparia, president of ADP Small Business Services, said small businesses have been the most resilient during and since the recession, in terms of employment. ADP is scheduled to release its April National Employment Report on Wednesday.

Speaking at The Private Company Outlook, Rajparia said employment among firms with 1 to 49 employees declined less during the recession than it did among both firms with 50 to 499 employees and firms with more than 500. In fact, total employment at firms with 1 to 19 employees in March 2013 was slightly higher than in December 2007. Meanwhile, total employment at firms with more than 19 employees ranges from 2 to 4 percent below employment in December 2007, based on research by ADP and Moody’s Analytics.

During the past 12 months, however, firms with between 20 and 49 employees have been adding jobs at a faster rate than have other sizes of firms, Rajparia added.

“In aggregate, small businesses are not holding back on hiring,” he said. One uncertainty is how the Affordable Care Act will influence hiring in the coming months, he said.

In fact, complying with regulations is among four challenges that ADP identified as especially relevant to small businesses. Since 2001, there have been about 4,700 changes to the U.S. tax code, and about 17,000 proposed tax law changes over 10,000 unique jurisdiction types, Rajparia noted. Small business owners also face challenges with growing their business, managing cash flow, accessing credit and attracting and retaining the best people, according to ADP.