Small business growth good news for PEO industry

By Brad Buttermore
Managing Partner and Chief Financial Officer

Small businesses are hiring at an aggressive rate, hitting a 12-year high, according to a recent survey from the National Federation of Independent Business (NFIB), and business optimism is at a 15-year high, according to the Wells Fargo/Gallup Small Business Index.

Small-business owners added the largest number of workers per firm since July 2006, according to the NFIB survey, which polled 1,700 small businesses across the United States. They are also optimistic, with 84% saying their financial situation in the next 12 months will be very good or somewhat good.

This is certainly good news for the professional employer organization (PEO) industry, which provides comprehensive HR solutions for small- to mid-sized businesses.

This news, coupled with other strong economic numbers and 2017 revisions to the federal tax code, has me feeling optimistic about future growth and M&A opportunities in the PEO industry.

Certainly, there are a few challenges that have come along with the strong state of the economy. Low unemployment has shrunk the labor pool and intensified competition for employees.

According to NFIB, 88% of those hiring or trying to hire reported few or no qualified applicants for the positions they were trying to fill. NFIB said 23% of owners cited the difficulty of finding qualified workers as their biggest business problem — just 1 point below the record high set in May 2000, when the economy was sizzling and unemployment had dropped to a 30-year low of 3.9%.

The U.S. economy grew 4.1% in the second quarter of 2018, according to the U.S. Department of Commerce, the fastest pace in nearly four years. Unemployment stands at 4% — one of the lowest rates in decades.

Not all economists believe this pace can be sustained, as inflation bites into moderate wage increases and the effects of trade tariffs begin making an impact. But for now, we are celebrating the economic expansion while being cautiously optimistic that small businesses will continue to prosper and grow.

Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40+-year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including human resource management.