As 2024 came to a close, Xero surveyed small business owners to find out how they were feeling, what was driving their positive or negative outlook, and how recent interest rate cuts had impacted their business.¹ As Xero’s economist, I’ve reviewed the results and dusted off my crystal ball to bring you my thoughts on what your business is likely to be facing in 2025 and how you can prepare. 

How are small businesses feeling as 2024 ends?

In the US, 88% of respondents said they were either still positive, more positive, or much more positive about their business than they were in the previous month. 

The top three reasons US small businesses told us they are positive, or more positive, about the future is that they:

• are making more sales (45%)
• have more work available (39%) 
• have seen an improvement in cash flow (38%) 

The first two sentiments likely reflect the better-than-expected performance of the overall US economy in 2024. Headline economic data, such as GDP, CPI and the unemployment rate, suggests the US has achieved the much-sought-after sweet spot of bringing inflation back under control while avoiding a recession and a surge in unemployment. The reported improvement in cash flow is most likely due to the ongoing downward trend in inflation. This likely makes it easier to manage costs, easing the squeeze on profits and cash flow.

What are the big macro trends in 2025 and how can you benefit from them?

Every year unexpected events happen, and it’s likely 2025 will be no different. Nevertheless, the macro trends that you, as a small business owner, accountant or bookkeeper, need to stay aware of can be grouped into three broad categories: government policies, central bank actions and productivity. With the right strategy you can turn these big trends, over which small businesses have little control, to your advantage.

New government policies

As with all new governments, it is unclear how much of the campaign platform will be implemented in the first year of the Trump presidency. There are many significant proposed policy measures that could impact small businesses – both positively or negatively – including higher tariffs, reduced immigration, lower taxes, significant tax changes, and deregulation.

What can you do: To take advantage of new opportunities, and limit any potential negative impact, you’ll need to remain focused on your business objectives. Working with your business advisors, aim to have a good understanding of how any new election-related policy announcements will specifically impact your business, supply chain, staff and customers.

Cash flow should benefit from lower inflation and interest rates 

Higher than normal inflation, and the accompanying higher interest rates, inflicted a lot of pain on many small businesses over the last two-to-three years. These forces drove up costs, hurt customer spending and squeezed profits and cash flow. A period of price stability and lower interest rates in 2025 should help ease any cash flow pressures you’ve been dealing with.

The Federal Reserve has begun its rate-cutting cycle, so the question now is, how quickly will rates be cut and to what level? This matters to small businesses like yours directly, as it increases how much you can borrow and/or reduces the cost of repayments. It also benefits you indirectly, due to the impact on your customers’ budgets as they have a little more to spend in your business. 

What can you do: Around three-quarters of US small businesses (72%) say they are yet to see the recent cuts to official interest rates resulting in more sales. As time goes by, more interest rate cuts are likely, as long as inflation follows the path the Federal Reserve currently expects. This means customers should start to have a little more cash available to spend in your business. Make sure you’re ready to respond with sufficient stock, enough staff, and additional marketing capacity. 

Productivity and digitalization

Unlike almost every other developed nation, the US has had solid productivity growth post-pandemic, which has contributed to it avoiding a recession. The Bureau of Labor Statistics estimates US productivity growth was 2% in the year to September 2024. This year’s productivity performance has given US small businesses a good base to work from heading into 2025.

What can you do: If you can boost your business productivity, then you’ll be able to do some combination of offering lower prices to customers, attracting more skilled staff through higher wages, or lifting the profitability of your business. Think about how you could use digital tools, including those powered by AI, to complete those low-value tasks that take time but don’t bring in sales. Review the processes your business uses to make sure you’re operating in the best way possible, not just a way you’ve always done something. Invest in your staff so that they can maximize the benefit of new technology or processes.

Get more small business insights

If you’re interested in finding out more about how small businesses in the US are performing, check out the Xero Small Business Insights for the US.

1. All figures, unless otherwise stated, are from an online survey commissioned by Xero in November 2024. Responses are fromsmall businesses in Australia (300), Canada (250), New Zealand (154), UK (600) and US (290) during November 2024. Options have been edited for readability. ︎

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