Small Businesses Forecast Revenue Growth as Costs Refuse to Budge

January 20, 2026

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Small Businesses Forecast Revenue Growth as Costs Refuse to Budge

74% of U.S. SMB owners expect revenue growth in the next year, reflecting widespread optimism that hasn’t wavered despite persistent economic headwinds. Nearly 60% plan to expand operations, signaling confidence in their ability to scale.

Yet beneath these projections lies a tension that’s reshaping how owners think about success. Revenue is climbing, but costs are climbing right alongside it. The result is a margin squeeze that transforms growth from a financial victory into a fight to maintain the same profitability that came easier just a few years ago.

The Gap Between Growth and Profit

The NFIB Small Business Optimism Index reached 99.5 in December 2025, surpassing its 52-year average of 98 and suggesting business conditions are improving. But a net 20% of owners reported negative profit trends, revealing a disconnect between top-line optimism and bottom-line reality.

Labor costs remain elevated, with a net 31% of businesses raising compensation over the past year. Software subscriptions, rent, and operational overhead haven’t declined in step with inflation’s moderation. The outcome is a financial structure where growing revenue by 20% doesn’t translate to 20% profit growth when expenses are rising at comparable rates.

Manufacturing SMBs illustrate the variability in margin performance. The sector’s 394,900 firms generated $722.4 billion in profits, benefiting from policy support like the Inflation Reduction Act. Trade and transportation businesses, by contrast, represent over 2 million firms but posted just $420.3 billion in combined profits.

These differences underscore how cost structures and external factors shape profitability even when revenue forecasts look similar. For many owners, surface-level financial reporting conceals the erosion happening inside their margins.

Risk Disguised as Momentum

Growth pursued without cost controls introduces operational strain that many owners don’t anticipate. Stretched resources lead to quality issues. Cash flow tightens as receivables lag behind payables.

65.3% of small businesses are profitable, yet only 9% exceed $1 million in annual revenue, revealing how most owners are generating returns but not scaling them efficiently. The margin pressure becomes a hidden liability. Owners run faster but don’t get ahead, chasing revenue targets that feel necessary but aren’t delivering the financial breathing room they expect.

Without real-time visibility into cost trends, growth amplifies risk rather than reducing it. A business adding 15% more revenue while costs climb 12% might appear healthy on a spreadsheet, but the narrowing gap leaves little room for error.

JPMorgan’s survey of business leaders found that 76% expect revenue increases but are prioritizing technology investments to offset tariffs and rising expenses. The shift reflects a recognition that expanding without infrastructure creates exposure, not stability.

Financial Systems as Infrastructure

Owners are responding by treating financial controls as essential infrastructure rather than optional overhead. Building cash reserves has become a priority for 47% of businesses, while 36% are renegotiating supplier agreements to lock in better terms.

AI adoption is accelerating, with 87% of users reporting efficiency gains that directly reduce costs. Among those same users, 91% saw revenue lift, demonstrating how the right tools create margin discipline while supporting scalable growth.

Establishing a cost baseline has emerged as a foundational step. Owners are auditing labor, software, and operational expenses to identify where money flows and why. This work happens continuously, not as a one-time fix, because cost structures shift as businesses scale.

Strategic cost management and revenue growth are no longer treated as opposing forces. Instead, they function as complementary levers that owners adjust in tandem, using real-time data to guide decisions.

Sustainable Growth Requires Margin Discipline

The path forward combines optimism with control. Owners view AI as essential for competitiveness, with 59% citing it as critical amid projected 3% inflation and a U.S. GDP growth slowdown to 1.6%.

The message is clear: revenue growth is achievable, but profitability depends on understanding and managing the cost side of the equation. Auditing cost structures and investing in financial visibility tools now positions businesses to scale without sacrificing the margins that keep them solvent.

Growth isn’t just about getting bigger; it’s about getting stronger.