The Smallest Businesses Are Currently Facing the Largest Financial Struggles

Many small businesses are struggling right now. But it’s those with the fewest employees that are struggling the most.

This realization comes from the Federal Reserve’s Small Business Credit Survey, which found that businesses with between one and four employees have seen larger declines in revenue than their larger counterparts. Specifically, about 40 percent of small businesses with between one and four employees reported declining revenue over the past year, compared to 36 percent of businesses with between 50 and 499 employees. In addition, only 40 percent of businesses with between one and four employees saw revenue growth over the past year, compared to 52 percent of those in the larger group.

Profitability is another factor that varies widely between these groups. Of businesses with four or fewer employees, just 42 percent reported turning a profit, compared to 72 percent in the larger group. Additionally, 40 percent of the smallest businesses said they are currently operating at a loss, compared to just 16 percent in the larger group.

Small businesses can struggle regardless of their size. But factors like inflation and labor shortages tend to have a larger overall impact on the smallest companies. Those with a more established group of employees also tend to have existing customer bases and larger revenue and cash flow to sustain their operations. Many of these companies also have areas where they can make cuts during difficult periods if necessary, whereas the smallest businesses already tend to operate in the leanest way possible.

This doesn’t mean that businesses with just a few employees are doomed to fail. It’s just that there are many factors out of these companies’ control that can make things challenging. Economic factors like inflation are constantly changing, and those who are able to weather storms like this may ultimately be more resilient and able to last and grow for long periods.

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This article, "The Smallest Businesses Are Currently Facing the Largest Financial Struggles" was first published on Small Business Trends