The Biz2Credit December 2024 Small Business Earnings Report, analyzing three years of financial data from 100,000 small businesses, paints a concerning picture of declining profitability, particularly in the final quarter of 2024. Average monthly earnings for the year plummeted to $83,083, a significant drop from $150,917 in 2023 and even lower than the $87,550 recorded in 2022. While revenues saw an overall increase to $747,608 compared to previous years, a surge in expenses to $664,525 ultimately eroded profit margins. This escalating cost burden became particularly acute in the latter half of the year, outpacing revenue growth and driving the downward trend in earnings.
The report reveals a volatile trajectory for small business earnings throughout 2024. The year began with a period of fluctuating revenue and steadily increasing expenses. Although revenue grew consistently through the first two quarters, peaking in July at $824,700, it began a decline in August, continuing through the remainder of the year. This downward trajectory mirrored the earnings pattern. Following a peak of $136,800 in July, earnings steadily eroded, dropping below $50,000 in November and ending the year at a mere $42,100 in December. The report highlights the stark contrast between the robust earnings experienced during the summer months and the sharp decline that followed, suggesting a precarious financial landscape for small businesses entering 2025.
A closer examination of monthly data reveals the widening gap between revenue and expenses, illustrating the core issue of rising costs. While revenues fluctuated throughout the year, expenses saw a consistent upward trend, starting at $512,000 in January and reaching a peak of $709,000 in October. This escalating cost pressure is attributed to multiple factors, including increases in rent, insurance, equipment costs, and labor. Despite a moderating inflation rate compared to previous years, the aggregate cost burden on small businesses continued to climb, outstripping their ability to raise prices and maintain profitability. The added pressure of higher borrowing costs due to variable interest rates further exacerbated the financial strain.
The Biz2Credit report underscores several critical challenges faced by small businesses in the current economic climate. The struggle to balance rising costs with revenue generation emerges as a central theme. While initial revenue growth offered some respite, the persistent escalation of input costs, including rent, insurance, and labor, eroded profitability. Additionally, the impact of variable interest rates on borrowed capital placed an added burden on small businesses, although the Federal Reserve’s move to lower rates towards the end of the year provided some relief. The overall picture suggests a vulnerable sector struggling to adapt to an environment of increasing costs and uncertain economic conditions.
Looking ahead, the report suggests several mitigation strategies for small businesses navigating these challenges. Leveraging technology, particularly AI and productivity-enhancing tools, is highlighted as a key avenue for improving efficiency and competitiveness. While larger corporations may initially benefit more from AI implementation, the report emphasizes the potential for smaller businesses to gain significant advantages over the next few years through the adoption of technology in areas such as accounting, payroll, and sales. Focusing on sustained revenue growth is also crucial, though maintaining this growth in the face of ongoing cost pressures remains a significant hurdle.
Further recommendations include exploring options to reduce expenses in areas such as fuel, taxes, and supply chain costs. The potential for lower interest rates in 2025 is also presented as a potential source of relief for businesses burdened by variable-rate loans. Finally, adapting business models and operational structures to become more efficient is emphasized as a necessary step for long-term sustainability. This might involve streamlining processes, renegotiating contracts, or exploring alternative sourcing strategies to optimize resource allocation and minimize costs. The report concludes by emphasizing the importance of a multi-faceted approach, combining technological advancements, revenue generation strategies, and cost-cutting measures to effectively mitigate the impact of rising costs and ensure long-term viability. The incoming Trump administration’s economic policies, particularly regarding interest rates and inflation control, will likely play a significant role in shaping the future landscape for small businesses. The report’s findings suggest a challenging start to 2025, underscoring the need for proactive measures to navigate the prevailing economic uncertainties and ensure sustained growth.
