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The state of U.S. small businesses entering 2018
Raleigh, N.C., December 8, 2017 – Though U.S. small businesses on the whole have seen steady growth so far this year, the retail sector continues to experience challenges. Small business retailers, on average, saw less than half the sales growth and profitability of the average U.S. small business in the same period, according to recent data from Sageworks, a financial information company.
Across sectors, businesses with less than $5 million in annual revenue experienced, on average, 6.1 percent annual sales growth in the 12 months ended October 31, 2017, nearly the same as the rate they saw in the same period in 2016, according to Sageworks. Net profit margin, representing how many cents of profit were generated for each dollar of sales, improved almost a full percentage point to 8.4 percent in 2017 among the privately held small businesses in Sageworks’ database. The data show the fifth consecutive annual improvement in net profit margin for all U.S. small businesses.
“Small businesses overall remained mostly static but solid in the key financial metrics of sales and profitability, based on our data,” noted Sageworks co-founder Brian Hamilton. “Though they saw a very slight slowing in sales growth, profitability improved in comparison to recent years,” Hamilton explained.
Below are trends in the five types of small businesses that employ the most people in the U.S., according to the U.S. Census Bureau. Small businesses in the manufacturing, healthcare and professional, scientific and technology services sectors all experienced consistent or slightly decelerating sales growth in the most recent period. Sales growth in the accommodation and food services sector slowed several percentage points from 7.8 percent last year to 4.7 percent in the 12 months ended October 2017. Sales growth for small retailers remained flat and relatively low, showing they are continuing to experience the same notable lag in sales growth as in 2016.
As for profitability, average net profit margins in the retail sector increased slightly more than a percentage point to 4 percent in the most recent period. Similarly, the manufacturing, accommodation and food services, and professional, scientific and technology services industries all continued experiencing slightly increasing margins in 2017. Healthcare stayed mostly static, dropping in profitability by only 0.3 percent to 9.6 percent.
Hamilton noted that the struggle of small business retailers over the past few years can likely be attributed, at least in part, to the growth of digital disruptors such as Amazon. “As consumers continue to embrace the ease of online shopping, traditional retailers will have to learn to adapt to compete,” Hamilton said. “Otherwise, these downward trends are likely to continue,” he added.
Through its cooperative data model, Sageworks collects and aggregates financial statements for private companies from accounting firms, banks and credit unions. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies’ operational performance.
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