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We now know the freelance economy is growing at a staggering pace, and here to stay. 56.7 million Americans freelanced in 2018, a leap of 3.7 million from 2014. People wanting more flexibility in their work options and the demands of a global economy are changing the traditional workforce model, with many opting to freelance rather than working 9 to 5. 73% of millenials are now going straight into freelancing. This stems from a desire to prioritize lifestyle over finances, though research actually shows talent can earn more money by working for themselves.
With self-fulfillment being a greater driver for freelancers than job security, they are constantly acquiring new skills to distinguish themselves. At the same time, companies are turning to freelancers as the most cost-effective way to recruit cream of the crop talent in specific fields while avoiding overhead costs. The gig economy is booming.
Kamran Ansari is a venture partner at Greycroft Partners, where he invests across the financial technology and commerce areas. He managed Greycroft’s investment in the popular app Venmo, the leading digital wallet and payments solution, and has seen a major shift in how the job market is becoming more freelance–oriented. “Yes, the gig economy is absolutely here to stay. It’s driven not just by the rise of on-demand technology services like Uber, Lyft, Postmates, Task Rabbit, DoorDash, etc, but also by the fact that many more experienced, educated professionals are choosing the flexibility of freelance work over full-time, W-2 employment. For employers, freelance workers are often less expensive because they don’t require the added overhead of 401k, healthcare, and other benefits. Those costs can easily add an another 25-50% of an employee’s core wages for an employer.”
Online freelancer platforms such as Upwork and Fiverr provide endless project opportunities. But with these projects come further responsibility–managing your business, not just your projects. Freelancers are falling short when it comes to making sense of their own finances and business selves. To make it in the gig economy era, freelancer behavior toward money needs to change and so does the existing business infrastructure available to them.
How big is the problem? Well, it’s big.
We are now in the midst of tax season, with March 15th looming as the deadline for submitting taxes as a business owner. Yet, most freelancers have no idea how much their financial backend bookkeeping and inaccuracies are actually costing them – and often feel anxious even attacking them. In fact, they unknowingly lose thousands of dollars a year each in missed deductions. With time prioritized toward mastering their crafts and learning new skills to expand offerings and income, the less glamorous task of money and taxes quickly falls behind.
Lance is a mobile-first platform that empowers individual freelancers with dynamic backend business management and insights. According to a recent survey the company conducted, the financial confusion has become even more apparent in the area of tax prep and filing. Only 60% of the freelancers surveyed deal with their taxes annually, with 20% never reporting. Furthermore, 50% of freelancers believe they spend under $150 annually on tax prep and 40% spend another $150 or more annually on bookkeeping. These perceptions are largely inaccurate, as the cost of working with a CPA would typically come in at thousands of dollars.
In part, these delays in calculating deductions, filing and basic bookkeeping contribute to the average freelancer missing out on over $5,000 worth of deductions on an income of $50,000. If you took this number and looked across the millions of freelancers and side hustlers in the U.S., that adds up to a significant portion of this $1.4 trillion economy. This doesn’t come as a surprise since money, numbers, and taxes are confusing not only to freelancers, but to traditional employees and the general public as well.
Oona Rokyta, co-founder and CEO of Lance was blown away by the survey’s results.”We hear all the time from freelancers about their challenges in juggling, much less actively learning more about how to manage, their finances. This survey validated the belief that people are underestimating the cost of taking on their own accounting, to their own detriment. The average annual global freelancing hourly rate is around $19 – well above the debated minimum wage in the US. With the right tools and infrastructure, freelancing can be both a very flexible and profitable path going forward.”
Greycroft’s Ansari has seen the pain firsthand and agrees current solutions fall short when it comes to helping freelancers manage their finances and businesses more effectively. ”Large platforms like Uber and others are trying to provide more solutions for their drivers, including access to record-keeping, driver statistics, and some lightweight banking and payments features (e.g to track their earnings and monitor their payments). But that’s really not Uber’s core business, obviously, to build ancillary solutions to help their drivers. So, we’re seeing a number of companies emerging that help freelancers (or those who hire freelancers) to manage things like scheduling and time-tracking, banking services, invoicing, billing, book-keeping and insurance.”
Financial education and tools need to be re-invented.
Banking and financial institutions have yet to provide comprehensive solutions for freelancers. The current infrastructure and tools offered are still largely built for and cater to small businesses, rather than freelancers’ needs more often characterized by wildly fluctuating monthly revenue and expenses, and a constellation of job types.
This is an opportunity for tech startups to offer solutions to this large audience and quite a few are looking to disrupt the space. Many tech founders are seeing the need in the market and innovation is quick to follow with new solutions for freelancers across banking, insurance, time-keeping and scheduling, book-keeping and Invoicing. Ones that have already attracted the interest of both freelancers and venture capitalists include France-based Shine, which recently announced a $9.3 million round to build a bank for freelancers; Lili Banking who’s behind the Lili Visa debit card and mobile experience designed to empower independent workers and small business owners in this new work era; Joust, an executive banking for solopreneurs; BotKeeper, which provides automated accounting for freelancers and SMBs; and Lance, which is coming out of stealth mode these days.
With millions of freelancers in the US, it’s clear that the gig economy is here to stay. Freelancers are working at an incredibly fast pace and with the growth of on-demand services, we’re definitely seeing just the beginning of a new economic model. Now is the time for tech startups and financial institutions and platforms to catch up and be a leading force in this dynamic, new economy.
March 14, 2019 at 12:00PM
Forbes – Entrepreneurs