Small business owners have the highest confidence rates in three years despite the challenges and obstacles faced, according to Counterpart’s annual “Small Business Insights Report,” which surveyed more than 300 business leaders.
This renewed business confidence leads to an increase in hiring, and 77% of those surveyed are “very confident” in their understanding of employee risks, even though more than a third of them were subject to legal action last year.
Dispute is bigger, more expensive and less forgiving than in years past. Small businesses that fail to expand coverage, monitor exposures, and integrate preventative practices into their operations risk becoming tomorrow’s red flags. The mismatch between business optimism and risk exposure is reshaping how small businesses manage growth in 2025.
To collect the data, Counterpart commissioned a survey of 302 small business owners and CEOs across the United States with a minimum of 25 and a maximum of 499 employees as of July of this year. The results were compiled and announced at the end of October.
Half of small businesses are playing without coverage
While 71% of executives say they are “very confident” in their insurance protection, with this confidence appearing to mask distinct exposure gaps. More than one in three small business executives surveyed have faced lawsuits against their employees in the past year, but only 58% take out employment practices liability insurance, and only 42% have coverage for directors and officers.
Legal battles are also becoming more severe: trials cost more 1 million dollars quintupled from one year to the next, going from 1.4% to 7% cases reported by survey respondents. The data reveals a whole new reality in which a single uninsured loss can mean the difference between sustained growth and sudden insolvency.
Technology as an equalizer
Technology continues to play a transformative role in small business confidence. Tools that were once expensive or complex, such as AI-based marketing automation, cloud-based financial management, and e-commerce platforms, are now affordable and easy to integrate. Artificial intelligence, in particular, allows small businesses to compete with larger players by improving customer engagement, streamlining operations, and identifying growth opportunities.
The rapid adoption of digital payment systems and cybersecurity tools has also made it easier for small businesses to access new markets and build trust with customers. In short, technology has leveled the playing field and given entrepreneurs more control over their growth and resilience.
Consumer and community support
Another major factor boosting small business confidence is the continued change in consumer attitudes. Shoppers are more likely than ever to “shop local” and support independent brands that reflect their values, authenticity and community involvement. This trend has been reinforced by social media, where local businesses have found effective and inexpensive ways to communicate with their audiences.
The tariff time bomb
Despite record optimism about their business prospects, small businesses face a complex economic landscape. Respondents identified their biggest challenges as follows:
- Inflation: 68%
- Prices: 62%
- Supply chain disruptions: 44%
As economic policies, such as tariffs, continue to evolve, nearly two-thirds of respondents believe a recession is possible in the next 12 months and are preparing accordingly.
“Small businesses are walking a tightrope between unprecedented opportunities and increasing risks. Many are adapting to new challenges by adopting AI, returning to an office-centric culture, revising their recruiting strategy, and updating their insurance coverage. We continue to witness the incredible resilience of small businesses, even as their risk exposures become more complex by the day.”— Tanner Hackett, CEO of Counterpart
Barcelona, Spain – July 18, 2025: Shipping containers and cargo ships are seen in the port. Concept of trade war, maritime trade and tariffs
(Davide Bonaldo/davide bonaldo – stock.adobe.com)
The next frontier of AI: Main Street
Small businesses are no longer afraid of AI. In fact, they implement it faster and more pragmatically than many large companies. 92% of small businesses surveyed have now integrated the technology into their operations, a dramatic change from 2023, when only one in five respondents were using the tool.
Small businesses have discovered the true power of AI as a productivity multiplier. Seven in ten respondents now use it for automation, while more than half use it for research and analysis. With more than a third (35%) of companies expect no impact from AI on their workforce over the next five years, AI is seen as a new boost to SME operations rather than a disruptive force.
Remote work declines as hiring power shifts to employers
Another change, almost half of the respondents (49%) now require a full-time office presence, up 7% from 2024, as businesses prioritize collaboration and culture over flexibility. This change comes as small business recruiting concerns have decreased by 8% and retention concerns by 16%, indicating that today’s job market favors businesses over candidates.