2016 was a good year for small business sales. For the fifth consecutive year, revenue increased more than 7 percent (7.3 percent sales growth in 2016) while net profit margins also saw a rise of 8.1 percent, a percentage higher than last year.
According to Brain Hamilton, chairman of Sageworks, “the improving profitability likely reflects a cautious view on spending that owners assumed following the last recession.” Studies from Sageworks indicate that for the past eight years business owners have taken a conservative approach toward borrowing, spending, and other financial issues. In addition, businesses have initiated hiring slow downs as well.
The obvious answer to such precautions lies in the 2008 financial crisis which lead to the 2009-2010 American recession.
JPMorgan Chase recently conducted a study of 597,000 businesses and found out how “… thin the safety cushion is for most small businesses” truly is. According to the study, “JPMorgan Chase Institute said that small businesses in its sample had a median daily income that was just $7 more than the median daily expenses ($381 vs. $374), and that difference was even smaller for small businesses in the personal services, retail and repair and maintenance industries.” It is estimated that 1 in 4 small businesses have only 13 days or fewer of holding reserves if the inflow of funds stopped.
Moving forward it looks like conservative practices will continue.