Inflation Remains Top Concern, with Future Expectations Mixed

While small business owners are confident in their business operations—especially at the local level—small business owners seem to be hedging their bets longer term due to national economic uncertainty.

Small business views of future expectations vary. Slightly more small businesses expect to increase staff in the next year (42%) compared to last quarter (37%). However, while the number that expect to increase revenue (65%) is stable from last quarter, it is down compared to this time last year (73% in Q2 2024).

At the same time, small businesses are optimistic about current business conditions. Nearly three in four (73%) small businesses say they are comfortable with their cash flow, up seven percentage points from last quarter (66%). Additionally, confidence in business health has increased (69%, up from 63%).

This quarter, inflation continues to be the biggest challenge facing small business owners by far, although concern about inflation has dropped (from 58% last quarter to 48% this quarter). Other concerns have shifted, as more small business owners cite employee retention (16%, up from 11%) as a top challenge, as well as a slight shift in the number that say supply chain issues (17%, from 13%) are a top challenge. This marks the first time the level of concern for inflation has dipped under 50% since Q2 2022. Just over a quarter (27%) of small businesses cite revenue as a top concern (down from 35% last quarter). Both inflation and revenue had reached all-time highs in concern last quarter; both have seen significant declines this quarter as other challenges crop up.

Also this quarter, a majority of small businesses (66%) say that figuring out what benefits to offer is challenging and a similar percentage (67%) wish they had outside help. This is a significant increase from Q1 2023.

The information landscape on benefits is scattered, with no one place being the dominant or primary source for small businesses searching for answers. The most common source of information is Google or other search engines, though just 32% of small businesses use search engines to receive this information. Slightly fewer turn to benefit provider websites (26%), asking employees about their preferences (26%), asking insurance or benefit brokers, consultants, or agents (21%), or other business owners (21%).

Lastly, views on employee benefits differ greatly by generation. Generally, businesses owned by younger generations view benefits differently and want more help with choosing and offering benefits. Gen Z/Millennials are more likely to report offering employee benefits, more likely to say these benefits have a range of uses, more likely to find it difficult to figure out what benefits to offer employees, and notably, more likely to wish they had outside help on employee benefits.