Small Business Pulse: Profitability strengthens as payroll growth holds steady
Get timely insights on the small business landscape. Presented by Chase for Business.
- Small business profitability rose over the summer, while payroll growth remained relatively steady. However, restaurants are experiencing greater payroll pressures and continue to fall behind in revenue growth rankings by sector.
- Payroll pressures and rising costs have made cash flow a daily balancing act. Small businesses are taking steps to protect themselves through pricing, expenses, suppliers, operations and financing, but many find they’re using personal funds or credit cards to cover operating expenses.
- AI is now common in small business workflows, but business owners aren’t using it to replace people. An analysis of Chase payment data suggests that many firms may rely on free versions, trials or AI features embedded in existing software, which can help them augment the work of employees.
Small business conditions can change quickly. Every few months, we gather Small Business Pulse insights on profitability, costs, payroll and investment to help you make decisions for your business and compete in a fast-changing world.
Profitability improves as payrolls hold steady
Profitability continued to trend higher in June and July but dipped slightly in August, according to Chase’s Survey of Business Owners (SBO), pointing to sustained improvement in the financial health of small businesses.
Small business payrolls continued to expand, but their growth was measured. In June, payrolls picked up slightly, with some of the largest gains concentrated in seasonal tourism, live events and local services. By August, overall payroll growth had steadied, with the share of businesses growing their payrolls and median payroll growth rate essentially unchanged over the past year.
A closer look at payrolls shows that payroll expansion also varies by industry. Restaurants have experienced a steady rise in labor pressures, with payroll’s share of total expenses climbing from 13.5% to 15.6% over the past few years. Higher wages and hiring difficulties, coupled with the volatility of food costs, may also be contributing to slower revenue increases as accommodation and food services have fallen from the second-fastest revenue growth to the 20th.
Looking more broadly at payrolls, the August SBO reported that transportation and warehousing payrolls have become the fastest-growing sector in payroll growth, suggesting businesses that move goods and support supply chains performed especially well this summer. Meanwhile, the information sector, which includes tech and IT-related small businesses, has consistently shown weak payroll growth as tech businesses have become more restrained in their hiring.
Overall, the September SBO (reporting on August) found that small businesses are still hiring, but 36% are having trouble finding qualified applicants, and 24% say it’s a struggle to offer competitive pay or benefits. Small businesses are also contending with operational challenges that cost time and may be shaping hiring decisions. These include payroll taxes, recordkeeping, hours and commissions tracking, and benefits administration.
Turn data into action
The small business economy remains strong. Consider growth opportunities that make the most of your people power, and look to translate revenue gains into operating leverage.
How small businesses are adjusting to higher costs
Costs remain elevated. Chase’s July SBO (reporting on June) revealed that a high percentage of owners were expecting near-term increases in prices and expenses, and in the September survey, 60% said their cash was tight.
Business owners are responding to these pressures in several ways. Over the first six months of 2026, 36% increased prices and 20% added fees. Business owners also made moves to reduce costs, including negotiating different supplier terms (24%) and changing suppliers (22%).
When those changes weren’t enough, some business owners turned to additional sources of cash. In August, 27% used personal funds, 23% used a credit card, and 21% postponed a planned purchase or investment. Many business owners are willing to take these steps to manage cash because they have prioritized protecting their people. Only 10% cut employee hours in August.
Turn data into action
If you haven’t already, take a closer look at prices and expenses. What’s having the biggest impact on your bottom line? You may find that you can relieve some of the cost pressure and improve profitability.
Most businesses use AI, but paid adoption remains limited
Chase’s August SBO (reporting on July) found that 83% of owners are using AI at some level, with 44% using it daily. Most are using free tools or tools embedded in existing systems, which may not be surprising as business owners feel the pressure of rising costs for existing expenses.
Business owners are using or are considering AI across a range of business functions, led by marketing and content generation (92%) and research, analysis and strategy (91%). However, very few small businesses are using AI as a replacement for employees. Across every business function mentioned in the September SBO, many more businesses are using AI to augment employee activity than to replace people.
Owners’ attitudes toward AI remain broadly optimistic: 63% believe AI will help their business operate more efficiently, and 58% believe it will be essential for competitiveness. However, many are still wary of risks. Only 43% say they trust AI to handle important tasks, and 60% are concerned about data privacy and security.
Turn data into action
How is AI already helping your business, and where could it do more? Now’s a great time to explore whether free or low-cost AI tools can help you work more efficiently without risking relationships.
Insights to help you get ahead
Small business trends can help you make sense of what you’re seeing in your own numbers. Watch this space in the months ahead for new insights from our Small Business Pulse to help you make moves that make a difference for you and your bottom line.
