Financial impact of COVID-19 revealed in QuickBooks analysis of 1 million small businesses

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

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

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.

Up next: Most-resilient businesses

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

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

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.

Up next: Sustained recovery since April 2020

Sustained recovery for most small businesses since April 2020

April 2020 was the first full month in which we see the impact of public safety regulations in the data. By the end of the month, median monthly revenue across all of the small businesses in our sample was at 78% of its pre-pandemic level — a shortfall of around $4.6 billion.4

In this section, we look at the big picture of small business recovery during the pandemic as the nation learned to adapt to COVID-19.

By the end of March 2021, all 10 sectors were back to their pre-pandemic revenues

For many small businesses, the recovery began almost immediately after the low point in April 2020. Fast forward to the end of March 2021 and all 10 U.S. sectors were back above the monthly revenue benchmarks they set before the pandemic. For example, monthly revenue for the construction industry in March 2021 was up by 30%. The retail industry was 22% ahead of its pre-pandemic benchmark. Manufacturing was 20% ahead.

Public-facing industries were hit harder — and may need more help

Stronger, more consistent recovery since January 2021

As we’ve seen — and is evident here in the timeline above — the summer of 2020 marked the beginning of a gradual recovery that largely continued until December 2020, when some businesses were again affected by renewed safety regulations. The impact of the winter lockdowns was uneven. Public-facing businesses that are most reliant on face-to-face interactions — such as restaurants, bars, hotels, and recreation businesses — were hit harder. This was especially true on the east and west coasts where population densities are higher.

To quantify this impact, for almost 33% of these businesses, revenue in December 2020 was 50% lower than in December 2019. In contrast, only 14% of these businesses experienced a similar revenue drop the year prior. In other words, during the pandemic, the proportion of public-facing businesses in financial distress more than doubled in December 2020.

In comparison, businesses that are less reliant on face-to-face interactions show mostly similar results in December 2020 compared to December 2019.

In January 2021 the recovery picked up speed more broadly again. And by February, even businesses that rely on face-to-face interactions hit 93% of the benchmark they set before the pandemic. By the end of March, they were at 107%.

Up next: COVID-19’s impact on cities and states

COVID’s impact on cities and states across the U.S.

The pandemic affected small business revenues more in some parts of the U.S. than others. QuickBooks data reveals how revenues changed over time in different cities and states — both proportionally (as a percentage) and in absolute dollar amounts — compared to pre-pandemic levels.

As a reminder, this data is aggregated from the nation’s smallest small businesses — typically with less than 10 employees.

Impact on U.S. states

This map shows that by March 2021 every state except Hawaii was ahead of its pre-pandemic performance.

The picture of recovery in March 2021 (see map above) is markedly different from April 2020, when the pandemic’s economic impact was at its peak. Back then, every state was performing significantly worse than before the pandemic. Coastal Western states and states in the northeast were hardest hit.

Why were some areas hit harder than others?

The patchwork pace of small business recovery across the U.S. has been largely driven by local factors:

1. Local responses

The U.S. did not roll out a nationwide stay-at-home order in 2020. Instead, each state created its own set of safety regulations, some of which were more stringent than others. As we’ve seen, these regulations typically had a bigger impact on businesses that rely more heavily on face-to-face interactions with customers.

2. Local economies

Cities and states with the most entertainment, tourism and hospitality businesses experienced the most disruption to their small business economies. Although the impact of COVID-19 was felt nationwide, popular travel destinations were often hit harder than other areas. This includes Hawaii, New York, and Washington, D.C., all of which also have overall unemployment rates well above the national average (source: BLS Employment Situation).

3. Local populations

Areas with the highest population densities were most affected by COVID-19. But as we’ve seen, local responses differed across the country. Among the larger, more populated states, California and New York put tougher safety regulations in place in comparison to Florida and Texas. Generally, small businesses in California and New York have experienced a slower recovery, but small businesses in some cities in Florida and Texas have also been hard hit.

COVID-19 impact on urban, suburban and rural small businesses

Businesses in urban areas have typically had a tougher time financially during the pandemic.6 To understand why, it helps to examine which kinds of businesses are typically found in urban areas compared to rural and suburban areas:

• Urban areas have more business services, food and beverage establishments, entertainment, and engineering and management services.
• Rural areas have more agriculture, agricultural services, and building and special trade contractors.
• Suburban areas are typically between the two — with a mix of urban and rural businesses. The exception is healthcare services. Suburban areas typically have a larger share of healthcare services than either urban or rural areas.

Small businesses in urban cores — particularly New York City, Washington, D.C., and downtown San Francisco — have been harder hit financially compared to those in suburban or in rural areas. This is partly due to the impact on tourism but also because so many people who were previously working in cities now work at home, and hence spend less at businesses near the office. For example, small businesses’ revenue in major urban areas of California such as Los Angeles, San Francisco, and the San Jose Bay Area are generally 5-10% worse than rural areas.

Up next: Why this matters

Why this matters: Small business impact and employment

A recent analysis by Susan Woodward using U.S. Bureau of Labor Statistics Data estimates that in the first quarter of 2020 there were 4.6 million firms with one to 19 employees, employing 21 million people in total. The 1 million or so businesses represented in this report are typically smaller, with up to 10 employees. Some have zero employees.

Small businesses are reacting to new patterns of demand

The impact of COVID-19 was felt by businesses everywhere in America, and across all industries. Whether urban or rural, brick-and-mortar or digital, product- or service-based, every business faced challenges arising from the COVID-19 crisis, and nearly all had to adapt and evolve their business processes.

Throughout 2020, the financial health of U.S. small businesses rose and fell in line with the pandemic as states, counties, cities and towns responded with varying stringent or lenient operational guidelines depending on COVID-19’s impact on communities. Some businesses were able to adapt well to these. Others found it harder to do so. As regulations were lifted, more small businesses saw opportunities to rebound. The recovery has been strongest in the first months of 2021.

COVID-19 shifted consumer demand. People moved away from industries such as hospitality and entertainment where social distancing can be more difficult and towards other industries — such as home furnishing, sports equipment, and building materials — that benefit from stay-at-home activities. Overall, the data reveals that many small businesses were surprisingly resilient during the pandemic. The recovery is slower in certain places, particularly for businesses that rely more on face-to-face interactions with customers, but broadly, most industries and areas of the country are returning to their pre-pandemic levels.

Small businesses need more help

Despite this good news, many small businesses need more help beyond what has already been provided in recent government support programs. This is particularly true for recreation, tourism and entertainment businesses but also retailers, bars and restaurants, among others.

1. Expand access to COVID-19 relief funds

Make it easier for the nation’s smallest businesses and those with limited access to banking services to benefit from government lending programs. The government should build on the recent success of the Paycheck Protection Program (PPP) and encourage collaboration between the Small Business Administration (SBA) and financial technology companies such as QuickBooks who serve these small firms. In 2020, financial technology companies helped the smallest U.S. businesses to access $16.5 billion of PPP funding through 476,000 loans, helping to save more than 2 million jobs (source: SBA).

2. Guarantee government support for the smallest businesses

Ensure that the smallest businesses across the nation, which are the backbone of the U.S. economy, do not miss out on future COVID-19 relief efforts. In February 2021, the SBA announced a 14-day, exclusive PPP loan application window for businesses and nonprofits with fewer than 20 employees. For future COVID -19 relief efforts, Congress should set aside funds for businesses with 10 or fewer employees.

3. Make it easier for small businesses to go digital

According to research by Deloitte , small businesses can double their revenue per employee by embracing digital technology. The U.S. should adopt similar government programs that have been pioneered in other countries around the world that make it easier for small businesses to adopt digital technology and build resiliency. The goal here is to make small businesses more competitive and less vulnerable to future recessions. This could be in partnership with the Small Business Development Center network and the SBA’s Women’s Business Center, for example.

Up next: About the economist Susan Woodward

Economist: Susan Woodward

Founder of Sand Hill Econometrics, Susan Woodward served as the chief economist of the U.S. Securities and Exchange Commission and Chief Economist of the U.S. Department of Housing and Urban Development. She has taught finance at the Stanford Law School, the University of Rochester Business School, and University of California at Los Angeles.

Before founding Sand Hill Econometrics, Woodward was executive vice president and chief economist of OffRoad Capital, an internet-based investment bank specializing in later-stage private equity placements. At OffRoad, she designed a system for auction pricing of private equity offerings. Woodward received both her B.A. and Ph.D. in financial economics from the University of California, Los Angeles.

Up next: Data sources and methodology

Data sources and methodology

1. Samples

This report does not use survey data. Instead it uses anonymized, aggregate data from around 1 million small businesses that use QuickBooks to manage their business. The exact number of businesses in the overall sample fluctuates over time on a monthly basis from a low of 800,000 small businesses to a high of around 1.1 million because it excludes businesses that do not have corresponding monthly data year over year. The annual revenue analysis also excludes any businesses with less than 10 months of corresponding data available year over year. QuickBooks Online customers who have not connected their business bank accounts were also excluded from the analysis. Consequently, this report only includes businesses that had deposits in their accounts during the given timeframes.

2. Net bank deposits

Throughout this report, the financial impact of COVID-19 is measured by comparing small businesses’ net bank deposits during the pandemic with the same data from the same businesses before the pandemic to reveal how things have changed for them year-over-year. Net bank deposits are incoming deposit transactions into small business bank accounts. This excludes non-operating deposits such as business loans and government assistance (for example, Paycheck Protection Program loans, also known as PPP). All of this data is anonymized and aggregated.

The net bank deposit data was used to calculate a monthly median year over year net deposit ratio (YOY revenue ratio) — referred to as “monthly revenue benchmarked to pre-pandemic monthly revenue” in the charts used in this report — which provides directional insights into small business revenues and recovery. The YOY revenue ratio is calculated as follows:

1. For each available business, calculate the YOY net deposit ratio by dividing the current month’s net deposit dollar amount by the corresponding month before the pandemic.
2. For each month, aggregate by taking the median YOY net deposit ratio among all available businesses for the relevant segment.

For example, a YOY revenue ratio of 85% for a given month means that:

• 50% of companies’ net deposits are less than 85% of the corresponding month before the pandemic.
• 50% of companies’ net deposits are greater than 85% of the corresponding month before the pandemic.

YOY revenue ratio was then overlaid with industry and geographic data to reveal the patterns of small business recovery between April 1, 2020 and March 31, 2021.

3. Industry classifications

For this analysis, businesses were grouped using SIC ( Standard Industrial Classification) categories, with 10 sectors (agriculture; construction; finance/insurance; manufacturing; mining; public administration; retail; services; transportation, communication, energy, & sanitary; and wholesale), comprising smaller industry categories (known as SIC2) and sub-industry categories (known as SIC4).

4. Total revenue decrease in April 2020

The $4.6 billion revenue decrease nationwide during April 2020 only applies to the roughly 1 million small businesses that are included in this report. It also excludes outliers beyond the 99.9th percentile of the data. Given that there are around 4.6 million small businesses in the U.S. with 20 employees or fewer, the total cost may be greater.

5. Per business calculations

Median values are used throughout this report in place of mean (average) values to eliminate outliers that can skew the data.

6. Urban vs suburban vs rural

The data sources for this classification are the U.S. Department of Housing and Urban Development and U.S. Census Bureau’s new measure based on research that asked people whether their neighborhoods felt urban, suburban, or rural — compiled by Census tract. For this analysis we used a zip code correspondence developed by Jed Kolko, chief economist at Indeed.com.

7. Annual revenue data

As described above (see footnote 2, “Net bank deposits”), annual revenues are estimated from anonymized, aggregate net bank deposit data. Annual revenues during the pandemic are benchmarked against the corresponding 12 months before the pandemic. In other words, annual revenue data from April 1, 2020 to March 31, 2021 is compared against annual revenue data from April 1, 2019 to March 31, 2020 from the same group of businesses.

8. Monthly revenue data

As described above (see footnote 2, “Net bank deposits”), monthly revenues are estimated from anonymized, aggregate net bank deposit data. Monthly business performance during the pandemic is then benchmarked against data from the corresponding months before the pandemic (for example, March 2021 vs. March 2019) from the same group of businesses.

Data limitations and considerations

The calculation of year-over-year revenue change required that any business included in the analysis have bank data for 2021, 2020, and the same months in the pre-pandemic years. Businesses were excluded if they had only recently connected bank data to QuickBooks or lost their bank connection within the one-year period.

A consideration of survival bias caused by businesses who discontinued operation or/and disconnected bank accounts during COVID-19 is also necessary. For example, the percentage of businesses that lost bank connections in 2020 (8%) is close to that in 2019 (7%), which means COVID-19 didn’t significantly increase the number of disconnected bank accounts in our data sample. Thus, the data is still comparable year-over-year without significant bias.

Net deposit data is only a proxy for business revenue and may sometimes over or under estimate the true business revenues because this may include non-revenue deposits, such as equity or loan transfers from other bank accounts not linked to QuickBooks. The majority of these were identified and removed by a transaction tagging algorithm. Another potential limitation is that businesses may have only connected one of their business bank accounts in QuickBooks, which would only provide partial insights of their net deposit activity.

Up next: About QuickBooks and Intuit

About QuickBooks and Intuit

QuickBooks

QuickBooks has been a trusted partner of small businesses for more than 25 years, helping them to manage the financial complexities of owning a business and to achieve success.

According to the U.S. Bureau of Labor Statistics, only 50% of small businesses survive past their fifth year. 70% of businesses that have used QuickBooks at some point survive beyond their fifth year.*

QuickBooks was initially launched to help small businesses manage their books. Today it does much more than this, by helping businesses to get paid fast, manage capital, and pay employees with confidence. Because of its long-standing position serving small businesses and the breadth of anonymized data available, QuickBooks is best positioned to offer insights into how small businesses performed financially and were impacted by COVID-19.

QuickBooks has real economic impact for its customers and their employees

• More than 400 million invoices have been created in QuickBooks
• With $65 billion in total payments volume, Intuit is among the top merchant processors in the U.S.
• 1.4 million businesses use Intuit for payroll services, with products such as QuickBooks Payroll, which pays more than 15 million workers each year

Through the CARES Act, QuickBooks Capital helped eligible customers access more than $1.2 billion in SBA-approved and Paycheck Protection Program (PPP) loans last year.

• QuickBooks Capital has helped more than 30,000 small businesses access these loans, keeping more than 220,000 employees on payrolls.
• Last year, the average loan size for eligible QuickBooks customers was less than $40,000, compared to the $100,000, the average PPP loan size distributed by the SBA.

Intuit

Intuit is a global technology platform that helps our customers and communities overcome their most important financial challenges. Serving approximately 100 million customers worldwide withTurboTax,QuickBooks, Mint, and  Credit Karma, we believe that everyone should have the opportunity to prosper. We never stop finding new, innovative ways to make that possible. Please visit us for the latest information about Intuit , our products and services, and find us on social.