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Small businesses are a key component of the U.S. economy. They employ millions of people and have been responsible for well over half of net new job creation since 2013, according to the Bureau of Labor Statistics¹. Small businesses are a source of innovation, and they provide critical parts and supplies to larger companies while acting as the backbone of much of the service economy.

Small businesses also face many challenges today, including the difficulty in finding skilled labor, the uncertainty around federal policy and higher financing costs. Navigating these challenges will require a solid strategic plan that is flexible enough to accommodate the ever-changing landscape.

Finding and keeping talent is top of mind

Labor is often the biggest expense for small businesses, and the talent market may get even tighter in 2025. Natural population growth, or the difference between births and deaths, is very low in the U.S. and headed toward zero², and the population is aging as well. Immigration has helped keep population growth positive, but the likelihood of the U.S. experiencing net negative migration, with more people leaving the country than entering, is increasing. As a result of these factors, labor may become more expensive and harder to find. Automation and productivity gains can alleviate some of the issue but aren’t complete solutions. Businesses of all sizes, but especially small businesses, will need a good strategy for acquiring, training and retaining workers.

Trade policy could bring pros and cons

Tariffs have been proposed on a variety of goods and countries. A potential positive effect of tariffs is that small businesses that are part of the supply chain but don’t make finished goods could find more opportunities to supply bigger companies domestically. Also, small businesses that make finished goods may be more competitive if competing foreign goods incur a tariff. However, businesses may not be able to export as much as they have in the past if the dollar remains strong and other countries enact retaliatory tariffs, and some inputs may become more expensive due to tariffs and general inflation. Reshoring, retraining and automation can help offset some of the effects of tariffs on supplies.

Focus on your finances

Financing a small business has become more expensive the last few years as both short- and long-term interest rates have risen. Interest rates may remain volatile throughout 2025 as the growth in inflation, deficits and GDP are all uncertain. All of these areas will also be affected by fiscal policy, trade policy and deregulation. One positive is that credit spreads may remain low if the economy remains strong. In addition, taxes may decrease (or at least not increase) and there may be more incentives for investment, which could boost growth in the short run. If tax cuts are not offset by spending reductions, however, U.S. federal debt will grow, which may cause interest rates and related borrowing costs to rise even further. As a result, companies will need a good strategy around how they finance themselves. This strategy should address questions around short-term versus long-term debt, variable versus fixed-rate loans, and more.

Managing a small business is never easy, but the current environment presents some unique challenges. For help developing your strategy, connect with an experienced financial partner who can help you overcome any obstacles ahead.