New analysis reveals real impact of COVID-19 on small businesses

Small Business

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QuickBooks commissioned economist Susan Woodward to uncover how COVID-19 has affected the finances of small businesses throughout the U.S.1

Woodward’s analysis uses net bank deposits — in other words, how much money is going into business bank accounts (excluding loans and government support) — to create the most complete estimate available of the pandemic’s impact on small business revenue.2 The businesses represented in this report are from every major sector and industry.3 Typically they have 10 employees or fewer.

Key findings

  • COVID-19’s impact on small business revenue was most severe in April 2020 when it dropped by 22% nationwide compared to before the pandemic — equivalent to $4.6 billion during that month alone for the businesses in the sample.4
  • Overall, 61% of industries saw annual revenues increase during the pandemic, following a largely sustained recovery since April 2020.
  • Home improvement and real estate businesses have been among the top performers over the past 12 months. At the end of March 2021, mortgage bankers’ annual revenues were up by 30% compared to their pre-pandemic level — an increase of $147,000 per business.
  • Some of the worst-hit small businesses are in the recreation industry. At the end of March 2021, bowling alleys’ annual revenues are down by 33% — a drop of more than $250,000 per business — compared to before the pandemic.5
  • In general, small businesses in high-density, urban areas — especially in states located on the east and west coasts — experienced a greater financial impact.6 Some of the worst-hit cities include Brooklyn, New York and San Francisco, California.

One year on, it’s a mixed picture for small businesses

Much has been said about how COVID-19 has been devastating for the small business economy. Stories like that of Idaho caterer Gretchen Talbert can be found up and down the country.

“We were having our best business year ever,” Gretchen says. “And then COVID hit and every single event canceled. We were in a panic — we didn’t know what to do.”

But this new QuickBooks analysis reveals a mixed picture. Yes, the financial impact has been significant, but it hasn’t always been for the worse.

Surviving businesses are recovering fast

The most encouraging finding is that even some of the worst-hit businesses are back to their pre-pandemic levels.

For example, by the end of March 2021, the monthly revenues of hair studios were 13% above their pre-pandemic levels. This is a huge turnaround from the low point in April 2020 when their monthly revenues were 78% lower than before the pandemic — equivalent to more than $11,000 per business for that month alone.

As we explore in more detail later in this report, the recovery started long before March 2021.

COVID-19 cost the worst-hit small businesses more than $250,000 in annual revenue

We can quickly see which small businesses face the greatest financial challenges today by comparing their current annual revenues against pre-pandemic levels.7 This reveals that nationally, 28 out of 74 industries in our analysis (38%) saw annual revenue go down during the pandemic.3 In this section, we also use monthly revenue data to show how the pandemic’s financial impact has changed over time.8

Recreation, travel and tourism face the greatest financial challenges today, according to the annual revenue data

QuickBooks COVID-19 data

Urban businesses bear the brunt

Five out of the seven worst-hit industries are made up of businesses that are most common in urban areas — including recreation, travel and tourism. If you were one of the many who skipped gym or yoga sessions during the pandemic — or had tickets to a long-awaited live show canceled — you’ll understand why these kinds of businesses are at the top of the list.

  • Bowling alleys are hit hardest of all businesses in the recreation industry, with annual revenues down by 33% ($251,000 per business) compared to their pre-pandemic levels.
  • Movie theaters are down by 51% ($144,000 per business).
  • Gyms are down by 15% ($32,000 per business).

Essential businesses also affected

As we’ll see later in this report (see >Most-resilient businesses), many essential businesses performed well during the pandemic. But there are exceptions. For example, the typically recession-proof education industry has been among the hardest hit over the past 12 months — for the same reason that many other face-to-face, service-based industries suffered.

Oil is another essential component of today’s economy but as often happens in a downturn, oil prices dropped significantly in 2020 — reaching historic lows in the spring. As a result, the oil and gas industry completes our list of the top seven hardest-hit industries.

  • Oil and gas exploration businesses’ annual revenues were down by 27% (equivalent to $145,000 per business) compared to their pre-pandemic levels.
  • Elementary and secondary schools were the hardest hit in the education industry, down by almost 16% ($38,000 per organization).

Monthly revenue data reveals a revenue rollercoaster for small businesses during the pandemic

QuickBooks COVID-19 data

Businesses that rely on face-to-face interactions took the biggest hit in April 2020, but some have recovered well

The low point for most small businesses came during the first lockdown in April 2020, before anyone had figured out how to respond to the pandemic. The top three industries that saw the biggest drops all rely on face-to-face interactions with their customers:

  • Recreation businesses were the worst hit in April 2020 but by the end of March 2021 the industry as a whole recovered to just 2% below its pre-pandemic monthly revenue benchmark. Despite this, entertainment businesses such as theater production companies were still down by 24% in March.
  • Hotels and motels had a 49% drop in monthly revenue in April 2020 but by the end of March 2021, they were up by 10%.
  • Museums and art galleries had a 50% drop in monthly revenue in April 2020 but were at 99% of their pre-pandemic performance by the end of March 2021.

Stronger recovery for retail and personal care businesses

Other industries that typically rely on face-to-face interactions with customers have also faced big financial challenges during the pandemic. For example, retailers and personal care businesses (such as barbers and hair salons) were among the worst affected in April 2020, but since then, these industries have enjoyed a stronger recovery than others.

  • Personal care businesses had a 52% drop in monthly revenue when the pandemic first started. Of these, barber shops were the worst hit, down by 82% (equivalent to $12,000 per business) that month. But in nine out of the last 10 months, they have been down less than 20%. In March 2021, they were 16% above their pre-pandemic revenue.
  • Clothing stores saw their monthly revenues decrease by 50% in April 2020. Of these, women’s clothing stores shops saw the biggest decrease — down by 56% (equivalent to almost $10,000 per business). In nine out of the last 10 months, they have been down by less than 10%. In March 2021, they were 14% above their pre-pandemic performance.

Most-resilient small businesses saw annual revenue increase by more than $150,000

In this section we compare small businesses’ pre- and post-pandemic annual revenues to reveal which industries have been most resilient.7 As before (see Worst-hit businesses), we also look at monthly revenue data to show how revenues changed over time.8

A diverse group of industries performed well during the pandemic, according to annual revenue data

Most resilient businesses

Real estate businesses finish the year with strong revenue growth

One year into the pandemic, some of the most resilient industries are those that provide essential goods or services. This includes agriculture and utilities such as energy providers and sanitary services. Housing booms in many parts of the country coupled with low mortgage rates contributed to significant growth for real estate businesses such as mortgage bankers and title abstract companies, which specialize in property records.

  • Mortgage bankers had a 30% increase in annual revenue ($148,000 per business) compared to their pre-pandemic performance.
  • Retail nurseries were up by 17% ($75,000 per business) while hardware stores were up by 14% ($94,000 per business) — likely driven by a surge in home improvement projects.

Specialist retailers saw strong growth during the pandemic

When we look more closely at some of the smaller categories of businesses used for this analysis (known as SIC4, from the Standard Industrial Classification system)3 to get a more granular view of the pandemic’s impact, several outliers emerge in the retail industry:

  • Motorcycle dealers’ annual revenue grew by 17% ($55,000 per business) compared to their pre-pandemic performance while RV dealers were up by 15% ($109,000 per business) — suggesting people were just as keen to escape their homes as they were to improve them.
  • Meat and fish markets were up by 23% ($152,000 per business).

The most-resilient industries have performed consistently well over the past 12 months, according to the monthly revenue data

Most resilient industries

As the timeline above illustrates, most of the top performing industries only saw their monthly revenues go down during April and May of 2020 compared to their pre-pandemic levels.

By June 2020, six of these industries were not only back to their pre-pandemic monthly revenues, they were ahead of them. By September 2020, all seven were ahead. This was not a short-term blip. The upward trend continued for them and — as we’ll see in the next section of the report — for many other small businesses as well.

Read more of the findings here.

This article originally appeared on the QuickBooks Resource Center and was syndicated by MediaFeed.org.

Featured Image Credit: scaliger / iStock.

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