Small business profitability declined further through May 2026, according to the June edition of the Bank of America Institute Small Business Checkpoint. The inflow-to-outflow ratio, a measure of cash flow health, fell across every revenue tier. But the decline has not been even. Firms with under $500K in annual revenue have experienced the steepest decline in profitability growth, meaning more cash is flowing out relative to what is coming in, of any revenue tier so far this year.
Why This Matters
Cost pressures from fuel and supply expenses have been building since earlier this year, and capital investment plans have already pulled back to their lowest level in over a decade. The Producer Price Index for final demand rose 6.5 percent for the 12 months ended in May, the largest 12-month increase since November 2022, driven in large part by a 23.4 percent jump in wholesale gasoline prices, according to the Bureau of Labor Statistics (BLS). That cost pressure is not landing evenly. Within small businesses, the smallest firms are absorbing the most of it.
Smaller firms typically have a smaller cash buffer. A margin squeeze that a $2 million business can manage for a few quarters can force a $300,000 business into harder decisions much faster, on pricing, staffing, or whether to pursue growth opportunities at all. The same economic conditions are producing very different levels of strain depending on size. It is a smaller, sharper version of the two-track economy playing out inside small business itself.
What Owners Can Do Now
Many small businesses are already responding by raising prices. NFIB data through May shows the share of firms raising selling prices at its highest level since early 2023. That may work for some, but for businesses in competitive or price-sensitive markets, passing costs through to customers risks compressing demand further, trading one problem for another.
The more durable response is to focus on what you can control: your own numbers, not industry sentiment or averages. Review your cash position, pricing power, and cost structure now, while you have room to make changes on your own terms. Strengthen your financial foundation so you can absorb pressure and respond quickly when conditions shift.
Our Becoming Bankable ® program helps small business owners build the financial systems and documentation lenders expect, before you need them.
If this is hitting close to home, let’s get you sorted. Schedule a free discovery session today.