Inflation Still Top Concern, Despite Retreat From Record High
Majority Says Inflation Impacting Their Business
Just under half (46%) of small businesses select inflation as their main concern, stable from last quarter (48%). Concern about inflation peaked in Q1 2025.
Even though inflation has become less of a concern over the past few quarters, it remains a drag on small businesses’ bottom line. For example, three in four (75%) small businesses say inflation has had a significant impact on their business in the last year. This represents a slight increase compared to Q2 2025 (70%) but is down compared to Q3 2022 (83%).
Also, most small businesses report increasing the prices they charge over the past year due to inflation. In fact, two in three (65%) report they have increased the prices of their products or services in the past year, as a result of inflation. This is down slightly compared to Q3 2022 (70%), but up slightly compared to last quarter (when 60% said they had to raise prices due to inflation).
There is some variation in the continued impact of inflation on small businesses by sector and ownership, with retailers and businesses with younger owners more likely to report raising prices:
- Retail small businesses are the most likely to report being impacted by inflation. 81% report being significantly impacted by rising prices and 72% report having to increase prices. These findings are higher than the same findings for professional services (67% and 56%).
- Gen Z/Millennial owned businesses (73%) are more likely to report increasing prices due to inflation compared to businesses owned by older owners.
Broadly speaking, inflation (rising costs or having to increase prices) continues to affect over half of small businesses across all sectors and ages of ownership.
Other Concerns More Widely Distributed
Behind inflation, revenue (26%) continues to be the second highest concern for small businesses. Notably, small businesses in services and retail are more concerned about revenue than those in manufacturing.
After inflation and revenue, concerns are more widely distributed among challenges like supply chain issues (15%), affording employee benefits (15%), and attracting talent (14%). It is worth noting that concern for attracting talent has been inching up since Q4 2024. Workforce issues could be an emerging concern to watch. A similar share (13%) noted employee retention as a concern this quarter.
Kellymoss.com
Fitchburg, Wisconsin
Small Firms Focus on Marketing, Sales, and the Customer Experience
Small businesses value investment across a wide variety of areas, but a majority cite three areas as very important: Marketing and sales (58%), in-person customer experience (58%), and materials and inventory (51%).
Second-tier areas that small businesses find very important to invest in include: The digital/online customer experience (44%), employees/hiring talent (44%), technology/software (43%), product development (43%), and employee benefits/other wellness tools (43%). Fewer are investing in infrastructure (34%) and AI tools (28%).
The younger the owner, the more likely a small business is to prioritize investing in the online customer experience, technology, and AI. Businesses owned by Gen Z/Millennials and Gen X are significantly more likely than those owned by Baby Boomers and older to say it is important to invest in digital/online customer experience (87% among Gen Z/Millennials vs. 61% among Baby Boomer+), technology/software (91% vs. 77%), and AI tools (69% vs. 38%).
When it comes to where they are focusing most of their investments right now, marketing and sales once again tops the list (36%). This is followed by materials and inventory (26%) or the in-person customer experience (21%). Technology expenditures fall into a third tier, with roughly even numbers focusing most of their investments in technology/software (15%), digital/online customer experience (14%), and AI tools (13%).
Marketing and sales are the single item where all four industry sectors report focusing most of their investments right now, while secondary areas of investment vary across industries.
Software and AI are Top Tech Investments for Small Businesses
Small businesses find value in investing in technology and software and AI tools, but less so compared to other types of investments. Overall, 15% say technology and software is where they are focusing most of their investments right now; 13% say the same for AI tools (compared to 36% for marketing and sales, the top investment priority).
That said, the importance of tech investments is especially important to professional services businesses. These respondents are the most likely out of the four sectors (services, manufacturing, and retail are the other sectors) surveyed to report investing in technology and software (25%) and AI tools (17%).
Of the small businesses that are focusing on technology/software investments, most (by a significant margin) say they are focusing on business software (60%). Second-tier tech investments include AI (36%), data management and analytics (32%), and cybersecurity software (27%). Relatively fewer reported investing in training employees on technology (19%).
Escalating Costs Are the Biggest Roadblock to Growth
Inflation is a top concern of small businesses this quarter—but it’s also a roadblock to expansion for many. Small businesses cite growing costs as the biggest roadblock to growth. More than a third of small businesses say the cost of goods and services (34%) is the most significant roadblock for their growth, followed by the cost of materials (30%).
One in five say issues with capital (21%) is one of the biggest roadblocks. Notably, millennial- and Gen Z-owned businesses are more likely than their older counterparts to point to staffing issues (18%) and supply chain challenges (19%) as roadblocks to growth.Size plays a major role in how businesses define growth and roadblocks. Mid-sized small businesses are more likely to cite the cost of goods and services as a roadblock, compared to both smaller and larger small businesses.
For example, 40% of 5–19 employee businesses and 45% of 20–99 employee businesses cite costs of goods and services as a roadblock, compared to 29% of the smallest small businesses (those with 1-4 employees) and 32% of 100+ employee businesses. Mid-sized small businesses also report the highest sensitivity to material costs, with more than a third (35%) saying materials act as a barrier to growth.
By sector, manufacturers are more likely than average to cite the cost of materials as a roadblock to growth (34%), while retailers and professional services show elevated concern over goods and services costs (45% each). Those in the service industry distribute their challenges more widely, with meaningful shares pointing to staffing and supply chain issues—in addition to costs—as barriers to growth.
Sonic Promos
Gaithersburg, Maryland
Many Feel the Regulatory Burden Makes it Harder to Grow
Compliance remains a big burden for many small businesses.
Forty-four percent of small businesses say that licensing, certification, and permit requirements make it harder to grow their business (down from 51% saying the same in Q4 2024). Additionally, 42% feel they spend too much time on compliance tasks (compared to 47% in Q4 2024). Mid-sized and larger small businesses are more likely to report compliance pain points than the smallest small businesses (those with 1-4 employees).
In addition, two in three (67%) small business leaders agree that small businesses spend more per employee to comply with regulations than larger competitors, and nearly half (45%) outsource compliance and regulation tasks to external providers. Both measures are in line with Q4 2024. Middle-sized and larger small businesses are more likely to report outsourcing compliance: 51% of those with 5-19 employees and 56% of those with 20 or more say they do this.
Finally, the majority of small business owners report they are confident in their knowledge of compliance and regulatory requirements, even as this figure is slightly lower than reported late last year (82% now vs. 89% in Q4 2024).
LUCA LLC
Birmingham, Alabama
Most Small Businesses Say Their Access to Capital is Good
Finding capital to grow is essential for any small business. So, the availability and ease of capital access is an important gauge of small business health overall. This quarter, the majority of small businesses say that it’s easy to find capital and their access to capital is good.
Three in five (61%) small businesses rate their current access to capital as good, up 12 percentage points compared to Q1 2023 (49%), when this question was asked previously, and up seven points compared to Q2 2022 (54%). Along these lines, compared to Q1 2023, slightly more find it easy to access capital (56% now vs. 50% in Q1 2023).
Larger small businesses (with 20-500 employees) are more likely to say it is easy to access capital (72%) compared to small businesses with 5-19 employees (59%) and 1-4 employees (51%). By sector, professional services (61%) and manufacturing and resources (60%) businesses are more likely to say it is easy for them to access capital compared to services (47%) or retail (53%) businesses.
Small business owners are also generally confident that they understand where to find sources of capital. Three in four agree they understand where to find sources of capital. This understanding is fairly strong across industry, business size, age of ownership, and region.
Thirty-seven percent of small businesses say they have had to budget for higher borrowing costs over the next year due to higher interest rates, down significantly compared to Q3 2022 (51%).