Small Business Financial Report Reveals Expenses Surpassing Incomes Significantly
This week, Biz2Credit revealed its Fresh Business Financial Wellbeing Analysis, scrutinizing the financial well-being of small businesses in the United States amidst the high inflation the nation has endured over the past two and a half years. The study delves into data starting from January 2022, when inflation surged rapidly, until now, when it's almost but not quite reached the Federal Reserve's desired inflation rate of 2%.
Related: *What the Falling Interest Rates Mean for Small Businesses*
The findings, based on credit applications from over 190,000 small businesses, indicated that inflation negatively impacted small businesses, with earnings continuing to suffer despite a decrease in inflation rates.
The graph below depicts the past two years' progression. January 2023 marked the month with the highest inflation (6.4%), during which the average earnings were $87,600. As inflation decreased to 6.0% the following month, revenues increased (frequently due to price hikes), but expenses did not rise as swiftly, resulting in an increase in average earnings. This trend continued until September 2023, when inflation was 3.7% and earnings peaked at $213,200.
Interestingly, revenues began to decrease in October 2023 while inflation continued to decline due to insufficient revenue growth to match the increase in expenses. Earnings plummeted to just $35,000 by March 2024 from the high of $213,200 six months earlier.
The data also showed a steady rise in average expenses from January 2023 ($209,400) to April 2024 ($575,300), followed by a slight decline in most subsequent months.
It's noteworthy to mention that while average expenses have decreased by over $130,000, revenues have fallen even more drastically. In fact, the average earnings in November 2024 dropped to $44,500 – the lowest since March 2024 and the second lowest figure in nearly two years.
This trend suggests that although inflation has decreased, it still exceeds the Federal Reserve's goal of 2%. Inflation has remained stubborn, and small to medium-sized businesses in the U.S. are feeling the strain.
The Biz2Credit Small Business Earnings Report includes companies from various parts of the country – from startups to established businesses – that applied for funding via Biz2Credit's online platform each month. It provides one of the most accurate and timely sources of small business financial health information currently available. It tracks earnings, revenues, expenses, and inflation over time.
Key Findings of Biz2Credit’s Small Business Earnings Report
· The average earnings for the first 11 months of 2024: $86,809. Average revenue for the year thus far is $747,618, while average expenses total $660,809.
· Overall inflation for the first 11 months of 2024 is 2.96%, which is above the Fed's target rate of 2.0% in setting lending interest rates but below the average rate for 2023 (4.1%) and 2022 (8%).
· Average revenues were highest in July ($689,800), while average expenses were highest ($575,300) in April. June witnessed the highest earnings ($124,800) thus far in 2024.
The main takeaway is that while inflation is decreasing since 2022, the overall cost level is still increasing, and small business owners cannot raise prices enough to compensate. Fixed costs, such as rent, insurance, and equipment, have skyrocketed.
Meanwhile, variable costs, such as labor, are also on the rise. California has enacted a $20 minimum wage. As of today, the minimum wage in California is $16.50 per hour for most businesses. However, for the fast food industry in the Golden State, the minimum wage is $20 per hour – the highest in the United States.
A number of other states will raise their minimum wages in 2025. The minimum wage hikes will provide a pay increase for more than 9.2 million workers on January 1 by a total of $5.7 billion, according to a study by the Economic Policy Institute. The minimum wage in Rhode Island, Illinois, and Delaware will reach $15 per hour in 2025, joining California, New York, Washington, Massachusetts, New Jersey, Maryland, and Connecticut, as per the National Employment Law Project (NELP).
Related: *Despite Increasing Revenues, High Labor Costs Hurt Small Businesses*
Small businesses often struggle more with these increases than large corporations due to the lack of technology to streamline their processes and the inability to function efficiently if they lay off workers or reduce their hours. Small businesses, such as hairdressers and nail salons, cannot survive without workers since their jobs cannot be automated. This is further complicated by the fact that employee costs are higher than ever before for business owners.
Fixed costs are also increasing. The commercial real estate markets in New York and other major cities have bounced back from their pandemic-induced slump. Insurance costs have soared, and any business owners who offer healthcare coverage to their employees know that these benefits put a strain on the bottom line.
People are still splurging in this economic climate, and the festive shopping period kicked off quite well. The earnings from Black Friday 2024 surpassed those of Black Friday 2023, matching the figures from 2022 and 2021. Meanwhile, Cyber Monday 2024 continued the trend of previous years, as per Circana, an authority on interpreting consumer psyche. However, Circana's recently published annual Holiday Shopping Plans Survey revealed that fewer shoppers intend to leave their holiday purchases until the last minute compared to the previous year.
The Biz2Credit Small Business Revenue Analysis indicates that the economy is hurting. As we move into 2025, the key issue is that inflation remains stubborn and expenditures are climbing faster than incomes, which places a significant burden on small businesses. In my opinion, the initial few quarters of 2025 could be tough for small business entrepreneurs, but by mid-year, things should start looking up as Trump focuses on reducing government expenditures, combating inflation, and stimulating America's economic growth. These are the aspects that the voters had in mind when they re-elected him as president on November 5.
- The Biz2Credit Small Business Earnings Report revealed that small businesses have struggled with high inflation, as evidenced by the decrease in average earnings despite a decline in inflation rates.
- Interestingly, despite a decrease in inflation rates, average expenses in small businesses increased from January 2023 to April 2024, followed by a slight decline in most subsequent months.
- Donald Trump's re-election as president in 2025 could bring relief to small businesses, as he focuses on reducing government expenditures and combating inflation to stimulate economic growth.
- During the festive shopping period, earnings from Black Friday 2024 surpassed those of the previous years, while Cyber Monday 2024 continued the trend of previous years, according to Circana's Holiday Shopping Plans Survey.
