Small to mid-sized business trends we’re seeing for the year ahead.
Reprinted from Advisor Magazine.
From shifting tariff and tax policies to rising healthcare costs, 2025 was a good year to minimize distractions, and many business owners are looking forward with a mix of caution and quiet confidence.
Every year, our team surveys 1,000 business decision-makers through the Principal Financial Well-Being IndexSM to gauge their view on the financial health of their companies, their local economy, and the U.S. economy. With three waves of results from 2025, the story feels familiar: The road wasn’t easy, but business owners are adapting and moving forward. Here are three trends we’re seeing in the small to mid-sized business market, and what they could mean for the year ahead.
The overall Well-Being Index dipped last year. After averaging around 8 points on a 10-point scale in 2024, the Index averaged 6.4 between April and October in 2025, driven mainly by declining confidence in local and national growth.
After dealing with a year of uncertainty, only 45% of business decision-makers felt optimistic about the economic outlook for 2026. Optimism runs even lower among small and midsized businesses—40% compared to 53% for larger employers—as smaller firms continue to shoulder more of the costs tied to tariffs and supply chain pressures.
But it’s not all gloomy. Even with the turbulence, 62% of businesses still expect growth in 2026, and two-thirds anticipate improved financial health, a testament to business owners’ ability to think clearly and strategically about next steps, even amid changing macroeconomic conditions.
Nearly all (95%) businesses reported being affected by supply or inventory challenges earlier in 2025. Healthcare costs have been the number one concern all year, rising from 58 to 62% between April and October, with small and midsized employers feeling it most.
The angst around inflation has eased a bit, but it’s far from gone. Between April and October concern about general inflation dropped from 56 to 49%, yet other financial pressures are rising in its place. Concern about the cost of offering employee benefits jumped from 45 to 53%, and concern about wage inflation climbed from 39 to 44%.
Still, the mindset for 2026 seems less about cutting and more about building. Businesses are ensuring that they have a strong floor by prioritizing paying down debt and strengthening cash reserves, while also upgrading tech and infrastructure to stay competitive.
The small and mid-sized business community showed remarkable staffing stability throughout the last year. In October, 91% of businesses reported maintaining or increasing staff levels. Looking through 2026, two-thirds (66%) of employers say they don’t expect to reduce staff, and among small businesses, that number rises to 72%. It’s clear that most businesses understand how difficult it is to rebuild a high-functioning team after losing talent, and they’re choosing to invest in their people.
Despite headlines about AI replacing jobs and major corporations announcing layoffs, most employers surveyed don’t yet see AI as a major driver of staffing changes. Instead, they see it shaping how work is valued: 60% of all businesses expect it to influence wage growth in their workforce. Small and midsized businesses also see AI improving efficiency, with 52% expecting wages to grow, and 15% anticipating more hiring in the next year or two.
As we are a month into 2026, one thing is certain: business owners aren’t standing still. They’re planning smarter, staying resilient, and finding ways to move forward.
This is also where financial professionals can make a difference.
- Check in often. The most valuable conversations often happen outside of formal reviews. Staying close to clients helps build trust and helps you spot changes early.
- Stay current on evolving policies and regulations. With tax and tariff rules shifting, working in tandem to flag and assess relevant changes can help business owners plan proactively and react appropriately.
- Find ways to add value. Know what’s important to a client’s business, including their concerns, and know their financial picture. That could also mean helping a client game out “what if” scenarios, introducing them to a peer network, or providing insights that assist in long-term decision making.
As business owners plan for the year ahead, they’re looking for guidance they can trust. Being a trusted financial professional means helping them navigate change and seize opportunities, setting the stage for a stronger 2026.
