Small business owners are watching profits evaporate as energy costs spike and labor expenses remain stubbornly high. The combination is creating real strain on companies that have been the backbone of job creation in recent years.
Profitability among small firms dropped 1.3% in April, marking the steepest decline in two years, according to new research from the Bank of America Institute. The downturn coincided with a surge in gasoline prices driven by geopolitical tension that disrupted global energy markets. The average price at the pump reached $4.53, up 43% from a year earlier.
For business owners managing tight margins, the fuel hit is brutal. Small firms spent 31% more on gasoline in April compared to the same month last year. Beyond that immediate squeeze, operators report persistent headwinds from labor shortages, stubborn inflation, and deepening uncertainty about where the economy is headed.
The stakes matter beyond the boardroom. Companies with fewer than 250 workers generated roughly half of all new jobs over the past five years, making their health central to overall employment growth. Yet even as consumer spending remains relatively robust, small business sales are beginning to slow, suggesting demand from everyday Americans may not be enough to offset rising operational costs.
Not everything points downward. Americans are launching startups at a remarkable pace, with roughly 470,000 new business applications filed monthly in 2025. That pace runs about 66% above pre-pandemic levels, signaling that entrepreneurial ambition remains alive. The willingness to take that leap reflects confidence in the long-term potential of starting something new, even if current conditions feel hostile.
The picture is decidedly mixed. The capacity for entrepreneurship that has long distinguished the American economy is intact, but mounting cost pressures are testing that strength. How long small business owners can absorb these blows without cutting back on hiring or investment remains the real question hanging over the current expansion.
Author James Rodriguez: "Profitability erosion on this scale doesn't stay contained for long, and if sales keep softening while costs keep climbing, the entrepreneurial momentum could stall fast."
Comments