Study of three full years of small business financial data from 100,000 small businesses reports sharp decline during the last quarter of 2024.
This week, Biz2Credit released its December 2024 Small Business Earnings Report, which analyzed three full years of financial data and revealed the average monthly earnings was $83,083 in 2024, down significantly from the year prior.
Increases in expenses far outpaced revenue growth in 2024, particularly in the second half of the year. Starting in January, small businesses experienced a long, steady increase in average monthly expenses, while revenues fluctuated. Although revenues rose steadily in the first half of the year, they declined from August through December.
The report for December 2024 gave a complete picture of the fortunes of small businesses, which struggled in the fourth quarter as rising costs outpaced revenues. Small business owners were on a roller coaster ride last year. Average monthly earnings dropped dramatically in comparison to 2023 and also were lower than they were in 2022.
Key Findings of the Small Business Earnings Report
- Average Monthly Earnings in 2024: $83,083. (2023: $150,917. 2022: $87,550)
- Average Monthly Revenue in 2024: $747,608. (2023: $515,208. 2022: $298,658)
- Average Monthly Expenses in 2024: $664,525. (2023: $364,292. 2022: $211,108)
Average Earnings were highest in 2024 during the month of July ($136,800), a figure that was more than $100,000 less than earnings in September 2023 ($237,700), which was the best month for small businesses during the last three years.
Earnings exceeded $100,000 during the summer months of 2024: June ($128,900), July ($136,800), August ( $130,000), and September ($105,400). The downward trend began in July and continued the slide in October ($68,200), November ($49,200), and December ($42,100) of 2023.
Average Revenues were highest in the month of July 2024 ($824,700), and lowest in January ($588,500).
Average Expenses rose steadily throughout 2024 from $512,000 in January, the lowest month until October ($709,000), the highest month. Expenses dipped in November and rose again, ending the year at $705,400 in December.
Month Inflation *Revenues *Expenses *Earnings
Jan. 3.1 $588,500 $512,000 $76,500
Feb. 3.2 $651,500 $586,700 $64,800
Mar. 3.5 $692,900 $651,200 $41,700
Apr. 3.4 $748,900 $687,500 $61,400
May 3.3 $781,500 $689,500 $92,000
Jun. 3.0 $808,900 $680,000 $128,900
Jul. 2.9 $824,700 $687,900 $136,800
Aug. 2.5 $813,600 $683,600 $130,000
Sep. 2.4 $795,800 $690,400 $105,400
Oct. 2.6 $777,200 $709,000 $68,200
Nov. 2.7 $740,300 $691,100 $49,200
Dec. 2.9 $747,500 $705,400 $42,100
2024 average $747,608 $664,525 $83,083
*Revenues, Expenses and Earnings represent a three-month average each month.
Although the inflation rate has been trending lower since 2022, the overall cost level for small businesses has increased, and they are unable to raise their prices high enough to make up the difference. The cost of rents, insurance, and equipment have soared, as has the cost of labor. Further, businesses that borrowed money often did so at variable rates, so they paid a high cost of capital in 2024. Fortunately for small business owners, the Federal Reserve began to lower rates. It remains to be seen if that will continue in 2025.
Even with lower interest payments, small businesses are operating under many financial pressures, and that their profitability was on a steady decline for the past six months.
Ways to mitigate the impact of rising costs
Some strategies small businesses can adopt to mitigate the impact of labor cost increases include:
1. Leveraging AI and productivity-enhancing technologies. Although AI will initially benefit larger corporations more, using accounting, payroll and sales force technology will help small businesses become more productive and efficient over the next 2-3 years.
2. Focusing on Revenue Growth. Revenue growth during the past three years has helped offset some of the cost pressures. However, small businesses will still face challenges in maintaining that growth due to rising input costs that likely won’t go down anytime soon, such as rent, insurance, and ever-increasing labor costs).
3. Exploring Options to Reduce Other Expenses. Small businesses may be able to find relief through factors like lower fuel costs, potential tax cuts, and reduced geopolitical tensions impacting supply chains and freight costs. If the Federal Reserve lowers interest rates, small business owners who have outstanding loan payments could feel some relief on their variable rate loans.
4. Adapting Business Models and Operations to Become More Efficient. The way many small businesses are run today may not be efficient enough, so they will need to restructure and change how they operate to adapt to the new environment.
The key is for small businesses to look at a combination of strategies to offset the impact of rising labor costs, including leveraging technology, driving revenue growth, and finding ways to reduce other expenses.
Can The Trump Administration Fix The Economy?
Donald Trump was elected based on his promise to fix the economy, and he says it will be a priority from Day One. He will have to focus not only on lowering interest rates but doing so in a way that does not kick-start inflation in 2025. According to the Biz2Credit Small Business Earnings Report, based on the later months of 2024, the start of 2025 could be a rocky one for small businesses.
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