In its latest Small Business Earnings Report for December 2024, Biz2Credit reveals a concerning financial trend for small businesses (SMBs) across the U.S. The report’s findings show a sharp decline in small business earnings in the last quarter of 2024, reflecting the financial pressure many SMBs face.
Key Findings: Earnings decline in 4Q 2024 attributed to steadily rising expenses
The Biz2Credit report reveals a significant decrease in average earnings for SMBs in the latter half of 2024, showing that average monthly earnings of $83,083 declined significantly from $150,917 for the same period in 2023. Earnings in 2024 were even lower than that of 2022 when average monthly earnings were $87,550.
The magnitude of the 2024 earnings decline is troubling as it marks a trend where rising operational costs have outpaced revenue growth, putting financial strain on small business owners.
Expenses were Up
Small businesses experienced a steady increase in their expenses throughout the year. In January 2024, the average stood at $512,000, but by October, this figure had jumped to $709,000. Despite a slight dip in November, expenses remained high, ending the year at $705,400 in December.
Revenues Fluctuated
In contrast, revenues followed an inconsistent pattern, peaking in the summer months, with July being the highest at $824,700 but gradually declining in the last quarter of the year. Revenue fluctuation at a time when operating expenses were steadily rising caused the earnings to drop.
Earnings declined
Average monthly earnings fell significantly, by almost $68,000 from 2023 to 2024, with the decline being most pronounced in the last quarter of the year. By December 2024, average monthly earnings had dropped to just $42,100, a significant drop from the summer highs.
SMBs Deal with Rising Core Costs while Revenues Stagnated
A surge in operational costs accounted for the earnings decline. While inflation has trended downward since 2022, the small business cost structure has increased. Business owners could not raise prices to offset higher rent, insurance, and equipment costs. At the same time, labor experienced substantial price hikes, putting immense pressure on business owners to maintain profitability.
Compounding these challenges, many small businesses that took out loans in previous years did so at variable interest rates. They experienced higher capital costs, particularly in 2024 when borrowing rates were higher. Though the Federal Reserve began lowering interest rates, the reduction was insufficient to reverse the damage from previously high-interest payments. Financial pressures left many small businesses operating with tight margins, struggling to cover their increased expenses while trying to keep their doors open.
The Earnings Rollercoaster Ride of 2024
Small business owners experienced numerous ups and downs throughout 2024. Average monthly earnings showed steady growth up through the summer months, reaching a peak of $136,800 in July. However, from August onwards, there was a marked decline in earnings, with small businesses seeing a decrease of more than $100,000 when compared to their peak in September 2023.
September 2023 was the best month for small businesses in the past three years, with average earnings reaching $237,700. Unfortunately, optimism was short-lived. By October, average monthly earnings dropped dramatically to $68,200, and the downward trajectory continued into November and December, where earnings further plummeted to $49,200 and $42,100, respectively.
The impact of inflation, high operational costs, and the inability to pass those costs onto customers has taken a toll on small businesses.
An Unclear Outlook for 2025
Small businesses remain unsure of what’s ahead in the coming year. They are pleased that the Federal Reserve lowered interest rates in 2024, but further action in 2025 is unclear. They are still grappling with the impact of recent high borrowing costs that will take time to settle out.
While lower interest rates can ease capital costs, small businesses must still contend with high operational expenses and an unpredictable economic future.
Rohit Arora, CEO of Biz2Credit, notes that the Small Business Earning Report revealed that small businesses are operating under significant financial pressures, with earnings declining in the second half of 2024, signaling a rocky start for 2025. He suggests that the incoming administration should focus on lowering interest rates and ensuring their actions do not reignite inflationary pressures.
