Biz2Credit’s Small Business Earnings Report paints a concerning picture of the financial health of small businesses in America, revealing the lingering effects of high inflation despite its gradual decline. The report, analyzing data from January 2022 to November 2024, demonstrates a complex relationship between inflation, revenues, expenses, and ultimately, earnings. While inflation peaked in January 2023, the subsequent decline didn’t translate into sustained profitability for small businesses. Instead, a concerning trend emerged: while revenues initially rose, likely due to price increases, expenses climbed even faster, eventually outpacing revenue growth and leading to a significant drop in earnings. This dynamic highlights the persistent challenges faced by small businesses navigating a volatile economic landscape.
The report’s data, based on nearly 200,000 small business credit applications submitted through Biz2Credit’s platform, reveals a stark reality. Even as inflation retreated from its peak, average earnings remained volatile, reaching a high of $213,200 in September 2023 before plummeting to a meager $35,000 just six months later in March 2024. This dramatic swing underscores the precarious position of many small businesses, particularly as expenses continued their relentless climb, reaching a peak of $575,300 in April 2024. While expenses have since declined, the drop in revenues has been even more pronounced, leading to continued financial strain. By November 2024, average earnings had fallen to $44,500, their second-lowest point in nearly two years, signifying the persistent challenges faced by small businesses.
A key takeaway from the report is the “stickiness” of inflation. While the overall inflation rate has been decreasing, it remains above the Federal Reserve’s 2% target. This persistent inflation, coupled with rising operating costs, places significant pressure on small businesses. They find themselves in a difficult position, struggling to raise prices enough to offset increasing expenses, leading to a squeeze on profit margins. This phenomenon is exacerbated by the nature of many small businesses, which often lack the economies of scale and technological advantages of larger corporations, making it harder to absorb rising costs.
The report further highlights the impact of rising labor costs on small businesses. Minimum wage increases in several states, including a $20 minimum wage for the fast-food industry in California, contribute significantly to the escalating expense burden. Unlike large corporations, small businesses often have limited capacity to automate tasks or reduce staff without significantly impacting their operations. This dependence on labor, coupled with rising wages, intensifies the financial strain. Additionally, fixed costs, such as rent, insurance, and equipment, have also seen substantial increases, further compounding the challenges faced by small business owners.
The Biz2Credit report also delves into specific financial data for 2024. The average earnings for the first eleven months of 2024 were $86,809, with average revenue at $747,618 and average expenses totaling $660,809. While overall inflation for the year averaged 2.96%, still above the Fed’s target, it was significantly lower than the 2023 and 2022 averages of 4.1% and 8%, respectively. This data, while showing a slight improvement in the inflation rate, still indicates the persistent struggle of small businesses to maintain profitability in the face of rising costs.
Looking ahead to 2025, the report expresses cautious optimism, acknowledging the challenges while also suggesting potential for improvement. Despite a strong start to the holiday shopping season in 2024, the underlying economic pressures remain. The report anticipates a potentially difficult first half of 2025 for small businesses, but expresses hope that the second half of the year will bring some relief. This optimism is linked to the expectation that the newly re-elected president will prioritize policies focused on cutting government costs, lowering inflation, and stimulating economic growth. The report suggests that these policies could create a more favorable environment for small businesses to thrive.
