This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Sales Growth Slows at Private Companies: What Does That Mean For Jobs?

NEW YORK (TheStreet) -- The "precipitous decline" in the rate of sales growth at privately held companies over the past few months could mean fewer jobs next year, warns Brian Hamilton, co-founder and CEO of Sageworks.

The average annual sales growth for private companies has slowed to approximately 5.4% as of September from 9% on May 31. Sales increased on average 6.9% in 2010 and 10.4% in 2011, according to a presentation Hamilton gave to a group of reporters in New York on Thursday morning. Sageworks expects private company average sales growth this year to be 7.4%.

On the other hand, net profit margins are rising, according to the data. Net profit margins were on average 3.3% in 2009; 4.3% in 2010; and 5.3% in 2011. Sageworks expects the average net profit margin for private companies to be 7.9% this year.

"If these guys are not hiring when sales growth is 10% and net margins are healthy, what are they going to do [when sales growth is] at 5%?" Hamilton said during the presentation. While no one can predict a recession, "this trend is sort of similar to what we saw back in 2008."

Cash flow is the most primary concern for private companies, as opposed to public companies beholden to shareholders.

If private businesses continue to see sales growth slow, profit margins will inevitably slow -- but that will be a short-term effect, since business owners will likely cut costs to keep cash flow stable, Hamilton says. Companies are likely to make the adjustments to their profit margin by reducing their biggest expense: payroll.

"In 2013, what's going to happen in most private companies is that their sales might stay lower, they might go up, but they're going to invest to what? Their profit. They're going to manage to their profit or cash flow," Hamilton says. "We've got to know how they behave because it has very big implications to the job market."

The Bureau of Labor Statistics is expected to release the September unemployment rate Friday. Economists expect the rate to tick up to 8.2% from 8.1%.

There are 27 million private companies in the U.S. today versus 5,000 publicly listed companies. Eight million of those companies have employees. Private companies shouldn't necessarily be called small businesses, though, since more than 85% of the 18,500 privately held companies in the U.S. have more than 500 employees, according to Sageworks.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,090.39 -23.15 -0.14%
S&P 500 1,987.79 +4.26 0.21%
NASDAQ 4,473.5410 +17.5250 0.39%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs