Fighting the Sales Slump
It's a summer Friday so what better time to look at some sobering financial data?
According to a report from financial information company Sageworks, sales have declined nearly 6.5 percent so far this year among privately held businesses with annual revenue of $10 million and less. That follows a 5.3 percent drop in 2009.
The good news is that these businesses have been able to stretch their net profit margin following three years of declines. For the first half of 2010, the net profit margin reached 6.2 percent at these businesses, more than a full percentage point better than 2009 and the highest level in the five-year period examined.
But is that good news? Not if you look at how those improved margins were achieved. Sageworks CFO Drew White said they were the result of "draconian measures."
Digging deeper into the data, White found that cash as a percentage of assets at these businesses remained almost the same from 2009 to 2010 -- which was not a random occurrence. Business owners were – and are – working hard to manage their cash in the face of slumping sales. That, of course, means cutting costs and the cost being cut most often remains payroll.
Sagework data showed that payroll made up around 18 percent of sales in 2006. Fast-forward to 2010 and that percentage dipped below 14 percent. Factor in the decline in sales over that period and White says payroll has fallen over 30 percent at these small businesses.
Here's another thing to keep in mind: These are businesses that have survived so far. Imagine what the carnage of a failed business looked like.
For these businesses that have operated under such taxing conditions, one bright side is that when things turn around (it is a matter of "when", right?), they'll be lean, mean and ready to go.
But these numbers suggest we're still a ways from there.