The number of struggling Southern Highlands businesses is well above the state average.
While 65.2 per cent of Southern Highlands and Shoalhaven businesses reported a decrease in profit, 48.5 per cent of NSW respondents said the same.
This number for the region was higher than the 52.4 per cent recorded in the previous report.
The NSW Business Chamber has released the results of the September 2019 quarterly Business Conditions Survey. The report collates the feedback of more than 800 business members across NSW.
The release of the report coincides with Small Business Month held throughout November.
Southern Highlands Chamber of Commerce (SHCCI) chairman Steve Horton said the loss in profit was the result of three main factors: the drought, families having less expendable income, and people not putting local business first.
Mr Horton said due to the drought the price of products from the land had increased and this "pushes through to everything else".
The increased cost of living and running a business has impacted on the expendable income families, workers and entrepreneurs have to spare in the region.
"People aren't getting pay rises anymore," Mr Horton said.
"We are not keeping in touch with inflation.
"The politicians are the only people getting pay rises."
In the report the majority of respondents in the area had not initiated major capital spending between July and September 2019.
Mr Horton said rent prices in particular cut into the profit margins of small business.
He said some landlords increased rent more than the Consumer Price Index.
"We [the SHCCI] think rents are way overvalued in the region."
The chairman said although "food and wine is all anyone ever talks about", the second biggest employer in the Southern Highlands was retail.
The business condition survey revealed 65.2 per cent of businesses in the region had not hired any new staff in the three month period.
"The visitor economy is important but we need to put local business first," Mr Horton said.
He said the notion of a "Southern Highlands Tax" was a myth.
"To survive we need to start buying local.
"The reality is we can help each other."