The insight: Small business optimism dipped in September due to growing concerns about inflation, tariffs, and weakening consumer demand, according to the National Federation of Independent Business (NFIB).

• Nearly two-thirds (64%) of small business owners said they were affected by supply chain disruptions, a 10-point increase from August.
• More small businesses reported lower sales than higher sales over the past three months, a worrying trend heading into the holiday season.
• The percentage of owners expecting an improvement in business conditions declined by 11 points compared with August, with fewer than 1 in 4 anticipating an upswing.

Why it matters: This holiday season could be a make-or-break moment for many small businesses. Nearly all—93%—think that their sales during the period will be essential to their survival this year, according to an Intuit QuickBooks survey. That’s up 52% from last year, underscoring how tariffs and economic uncertainty are threatening small businesses’ ability to survive.

• Tariffs are eating into margins. Over two-thirds (68%) say tariffs have significantly affected them this year. While 32% of those affected have raised prices, 30% have opted to eat the costs themselves. One-quarter stockpiled inventory early—a risky tactic that could backfire if shoppers curb holiday spending.
• Uncertain access to capital is curbing companies’ ability to plan ahead. Interest rates are too high for many businesses to afford, forcing them to halt expansion and investment plans and, in some cases, lay off workers, according to a Goldman Sachs survey. The government shutdown is only making matters worse by delaying processing and approvals for Small Business Administration loans—funds that many small businesses rely on for inventory planning and other essential functions.
• More spending is flowing to mass merchants. Two-thirds of small businesses consider big-box retailers to be their fiercest competition this holiday season, per Intuit QuickBooks, which makes sense given that large corporations have pricing as well as ecommerce advantages. At the same time, that could be an opportunity: With Amazon and Walmart expected to account for over half of holiday ecommerce sales, sellers on those marketplaces stand a better chance of getting in front of shoppers.

The big picture: Despite significant macro headwinds, small businesses are largely optimistic as they head into the most important period of the retail season. While the NFIB’s index shows sentiment trending down, businesses are much more optimistic now than they were in the same period last year—although that could change the longer the shutdown lasts.

Amid the uncertainty, there are several steps that small businesses can take to maximize their ability to drive sales during the holiday season.

• Leverage AI tools. Companies can use AI to quickly build and scale marketing campaigns and target would-be customers more effectively. Cash-strapped businesses can lean on the technology to operate more efficiently and deal with tariff-related headaches.
• Focus on value, not price. While price matching with mass merchants may be out of reach for most businesses, companies can still offer enhanced value through top-notch customer service, unique in-store experiences, and loyalty bonuses.
• Center promotional efforts around the Cyber Five. The shortened holiday season, coupled with shoppers’ price sensitivities, will make Black Friday and Cyber Monday a crucial time for scooping up seasonal spending.