U.S. private companies squeezing more profit out of every dollar sold

Still battling weak consumer spending and a shaky economy, business owners are finding ways to squeeze more profit out of every dollar they make, according to a new study.

U.S. private companies reported an average net profit margin over the past six months of 7.6 percent, significantly higher than the 4.6 percent margins they sustained during the same period one year ago, according to data compiled by financial analysis firm Sageworks.

Profit margins measure profits divided by total sales. The increase suggests employers are moving slowly to add workers or add costs to their operations.

“The businesses that survived the recession were ones who were able to do more with less, and that mentality of lean operations seems to have carried over,” Libby Bierman, an analyst at Sageworks, said in an interview.

The report is based on thousands of financial statements collected from banks, accounting firms and credit unions, which are analyzed based on factors like industry, size and location.

Some of the highest net profit margins can be found in professional services sectors like accounting and legal services, where low overhead costs help firms enjoy average margins around 20 percent. However, the most positive signs of late, Bierman said, are in the construction industry, where sales are growing at an accelerating pace and average profit margins have spiked from 1.9 percent a year ago to 5.1 percent last month.

“It validates the positive data we have seen for housing starts, and it’s a good sign for the industry,” she said.

The not-so-good sign for the economy as a whole is that, while sales continue to increase for private firms, they are rising at a slower rate than they were last year. Overall, business owners reported a 9.7 percent year-over-year sales increase last month, compared to a 10.1 percent increase in February 2012.

Small businesses have consistently pointed to weak sales as their greatest concern over the past few years. In the latest survey by the National Federation of Independent Business, one third of small business owners reported lower sales, compared to only 19 percent reporting higher sales. Only taxes and regulations ranked higher on their list of complaints.

For a look at the seven most profitable sectors, check out the gallery above.

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J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he manages the Post's On Small Business blog.
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