In Wodonga in north-east Victoria, Bean Station Cafe owner Rod Ayton is stressed about the cost of living.

"Our margins are slipping. We're paying an average of $100 a day just for gas and electricity," he said.

He is far from the only small business owner balancing increasing costs including staff wages, bills and food.

Hospitality businesses across the region are reducing trading hours, putting fewer staff on and increasing the price of food and coffee to cope with the increased cost of living.

Mr Ayton is worried the worst is yet to come.

"I've been in the hospitality industry for 35 years. It's getting harder and harder all the time," he said.

The cafe recently increased the cost of a cup of coffee for the first time in two years.

The cost is likely to go up again, as the small business owner looks at what else can be cut or adjusted.

Mr Ayton said small businesses would be forced to close if the pressure continued.

"It's this vicious cycle. People don't understand that when wages go up, the money has got to come from somewhere," he said.

The end of free loyalty coffee? 

Renee Alexandra, owner of Bendigo cafe Awaken Coffee said the number of customers coming through her doors had dropped markedly in the past 12 months.

"The regulars that used to come once or twice a day, suddenly they've dropped off," she said.

"They've just said that they can't afford it — they just can't justify it — when they can make a coffee at home for next to nothing.

Ms Alexandra is one of several cafe owners considering scrapping free loyalty coffees and increasing prices.

"I've slightly reduced staff hours and have started simplifying some processes to make us more efficient."

Customers to pay more

More small businesses are closing because of falling profits during the cost of living crisis, sparking calls for the Reserve Bank to consider small operators as it continues to fight inflation. 

Manager of Cafe Lava in Warrnambool Danielle Baulch said her workplace had cut opening hours, put fewer staff on and put prices up.

She said the price of meals would go up further if costs continued to increase. 

"It hasn't stopped anyone from coming out, we're still busy, but I'm sure it will happen. We'll see how the school holidays go," she said.

A survey of 550 Australian business owners by the Restaurant and Catering Association in February found rents had increased by an average of 8 per cent and supply costs had risen by about 10 per cent.

The majority of respondents said they were increasing the price of meals and adjusting trading hours.

"The hospitality sector is offering fewer dining sessions," Association chief executive Suresh Manickam said. 

"For example, instead of opening four days a week, it might be three and instead of opening all evening, there are two shifts of a night."