The rise of the self-employed - WordPress.com · 2018-01-02 · Freshbooks, most self-employed professionals are able to self-finance their operations, with only 1 in 5 requiring

The rise of the self-employed BANKING’S BIGGEST UNTAPPED MARKET

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INTRODUCTION

In the US alone, there are 57.3 million Americans

who are self-employed in some capacity; many

of which, prefer not to deal with big banks1. The

majority believe big banks are not designed to

service their needs and wish there were more

alternatives. As a result, almost 1 in 2 do not have

a business relationship with a bank2.

We explore who the self-employed are, and outline some of their unique needs. By delivering differentiated services or experiences the self-employed crave, banks have the opportunity to stand apart from their peers. Our findings point to the need for receipt management solutions—tools required by self-employed professionals to live financially healthier lives, and grow their businesses. If banks offer these types of services, banks will revitalize customer relationships with the self-employed.

3 THE RISE OF THE SELF-EMPLOYED: BANKING’S BIGGEST UNTAPPED MARKET

Breaking down the segmentThe booming self-employed workforce adds $1.4 trillion to the US economy annually3. The group varies in age, income levels,educational attainment, and even work arrangements. Theyinclude, but are not limited to, full-time IT contractors and creative freelancers who earn more than their 9-to-5 counterparts; individuals diversifying their income with part-time gig work; salary workers with a growing side hustle; and everything in between.

Notably, this workforce shift is not generational. Instead, it’s rooted in shifting economic conditions, decentralization, corporate downsizing, technological advancements, and a cultural change in how people view the 9-to-5 grind.

One thing is for certain: the self-employed are here to stay. Despite the advantages of traditional employment—a steady income, health benefits, and retirement plans—the large majority of self-employed professionals cite superior job satisfaction, with no desire to return to a 9-to-5. In fact, more than 7 in 10 self-employed professionals intend to grow their businesses in terms of staff or revenue4.

60% of self-employed freelancers who left traditional jobs say they are making more money. Of that group, 78% were making more money within one year of leaving their jobs, indicating that freelancing can be an even more lucrative career path than traditional jobs5.

In Australia, 92% of full-time self-employed professionals reportleading happier lives, attributed to the flexibility, control and autonomy of being their own boss. They are the happiestsegment among all workers nationally6.

On-demand technology platforms (i.e., Uber, Lyft, Taskrabbit,Airbnb) offer new avenues for generating income, giving impetusto the rise of the self-employed “gig worker”. The number of gigworkers are expected to double over the next four years, totaling9.2 million people in the US alone. According to the Bureau ofLabor Statistics, there are already more gig workers than the entire IT services and information sector combined. Given the current growth rate, the number of gig workers is expected to surpass the entire workforce count in finance and constructioncombined by 20217.

While many are self-employed out of opportunity, some are self-employed out of necessity. Self-employment rates increase during economic downturn, notably among the middle-class. American economist, Steve King, cites forces such as wage stagnation, the decline of middle-wage jobs, and higher costs of everything from healthcare to education, are encouraging people to join the self-employed economy by picking up gig work. This supplemental, and often temporary, income helps buoy people; maintain their lifestyles; or prepare for new life stage events such as starting a business or family8.


IndependentContractors

They do not have an employer.

Instead, they work on contracts

as freelancers or specialized

agents on a project-to-project

basis. For example, an HR

consultant.

21.1M

40%

Side Job Moonlighters

They are professionals with a

traditional full-time employment

for primary income, who also

moonlight doing freelance gigs.

For example, a corporate-

employed web developer who

does projects for nonprofits in

the evenings.

14.3M

27%

FreelanceBusiness Owners

They have one or more employees

and consider themselves both

a freelancer and a small business

owner. For example, a social

marketing guru who hires a team

of other social marketers to build

a small agency.

2.8M

5%

Temporary Workers

They have a single employer,

client, job, or contract project

where their employment status

is temporary. For example, a

data entry worker employed by

a staffing agency and working

on a three month assignment.

5.5M

10%

Diversified Workers

They have multiple sources of

income from a mix of traditional

employers and “gig work”. For

example, someone who works

the front desk at an office 20

hours per week, and fills the rest

of their income driving for Uber.

9.3M

18%

BREAKING DOWN THE SEGMENT

Who makes up the self-employed (US)9


BREAKING DOWN THE SEGMENT

The self-employedby country

Australia

37% of the entire workforce (4.5 million) Growing anywhere from 3% to 11% YoY.

Canada

37% of the entire workforce (7.2 million) Expected to amount to 45% of the workforce by 2020.

The United Kingdom

15.1% of the entire workforce (4.8 million)The labour force that is strictly defined as ‘Freelance’ has been growing at 4.57% per year.

United States of America

37% of the entire

workforce (57.3 million)

Growing at a rate of

2% per year.

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Still, the majority of self-employed people do not fit the “struggling to make ends meet” narrative. According to Freshbooks, most self-employed professionals are able toself-finance their operations, with only 1 in 5 requiring outside capital to start up. The top sources of capital for the self-employed are their own personal savings (61%), followed by credit cards (32%)10.

Traditional professions are now increasingly contracted out to the self-employed. More than ever, contractor positions are in demand by firms of all sizes; including the self-employed themselves, where 2 out of 3 self-employed professionals prefer outsourcing jobs to independent providers11. 100 of the Fortune 500 are already using Upwork to source freelancers12. Reports by FlexJobs indicate that the most in-demand self-employed fields were13:

Medical & Health

Education Project Management

Computers & IT

Accounting& Finance

Reports by FlexJobs indicate that the most in-demand self-employed fields were:


The needs of the self-employed cannot be conflated with either traditional salary workers or established businesses.

Despite their diversity, the self-employed share one commonality: they feel grossly underserved by their banks. The majority of self-employed professionals are tentative about working with big banks altogether.

A Freshbooks study states only 1 in 2 self-employed professionals have a business relationship with a bank. And even then, the study found that 52% of the self-employed felt big banks are not designed to service their needs; and 54% said when it comes to financing, they wish there were more alternatives to big banks14.

Exploring pain pointsof the self-employed

More than half use their personal checking account for both business and personal finances (56%), as well as their personal credit card (53%)15. This raises the even larger issue of banks being unable to identify the self-employed among personal banking account holders.

Financial services favour those in traditional employment schemes - that is, a salary worker or a corporation. But the self- employed need different personal financial tools, advice, and skills to thrive given that their income may be uneven or diversified, taxes are complicated, and managing expenses is laborious.

There are many pain points that financial institutions are best positioned to solve for the self-employed. Including long-term and retirement savings plans, card programs tailored to their needs, and more considerate mortgage and credit application processes. In the meantime, there are low hanging fruit opportunities that banks can seize.

The same FreshBooks study discovered that the highest self-employed earners demonstrated certain best practices. This allowed them to save money and be confident about their financial well-being, personally and professionally.

BANK


Regularly reviewing finances

Maximizing tax write-offs and deductions

Establishing an optimal business structure for liability & taxes

Saving an appropriate amount for taxes

Proactively reducing debt

Paying themselves a salary from business earnings

Maintaining a budget

Four out of these seven best practices require proper receipt management.

Banks eager to win over the self-employed need not look further than receipt management solutions for a guaranteed quick win.

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Best practices for the self-employed16


Not knowing what can be deducted as a business expense.They are eligible to take advantage of hundreds of income tax deductions including those specific to home-based businesses, and charitable contributions. However, many, especially in their first year of operation are not aware of the breadth of opportunities.

Other times, itemizing receipts is too time-consuming when focused on growing their venture, so tax credits are forgone.

Not maximizing tax claims due to poor receipt management. Just one in five (22%) of micro-business owners said that they claimed back all of the expenses they incurred for their business17.

On average, the self-employed are 3x more likely to be audited by the IRS. These chances increase for those who report higher

Diving into receipt- related pain points

earnings. The self-employed with gross receipts of $100,000 or more are 6-8x more likely to be audited18.

The outcome? The self-employed forfeit 30% of claims on their business expenses due to lost receipts. The inability to back up claims can lead to disallowed tax relief, and heftier tax bills.

Moreover, it is a top cited emotional pain causing undue stress hunting for receipts and recalling their exact business purpose.

Administrative inefficiencies with monitoring cash flow. Many self-employed professionals rely on credit card statements to manage business expenses and monitor account balances. The administrative effort to manually reconcile receipts to card transactions costs them valuable time. One company estimates that transaction matching features in software saves his billing team +40 hours/month19.

Furthermore, in this method, cash purchases are entirely undocumented in budgets and deductible expense accounts.

Productivity hits from not separating business from personal expenses. This group spends up to 2 hours per week separating business expenses from personal expenses. According to Intuit, 75% entangle their business & personal finances, because they use personal banking accounts for work-related activities20.


Not having a good system for expense tracking. This segment does not have the luxury of an accounting department reviewing expense reports and managing the books. 46% employ tedious, manual methods of data entry into a spreadsheet21. This time away from their projects adds up. The majority of self-employed professionals & small business owners spend more than 40 hours per year dealing with federal taxes. 40% report spending in excess of 80 hours—two full work weeks—per year on federal taxes22.

For the self-employed professionals who do outsource this, nearly half spend $5,000 or more annually on the administration, and 28% report spending more than $10,00023.

On the upper end of the spectrum, software solutions can cost up to $40/month, and mere receipt scanning software can start at $9.99/month. According to the National Society of Accountants in the US, accountants charge between $150 and $400+ per hour, and bookkeepers charge $30 to $50 per hour.

Not surprisingly, a study by WBR commissioned by Sensibill, surveyed major banks and found that 65% have a receipt-powered service already or are considering it on their roadmap24. A likely cause, as indicated by the same study, is that a chief digital priority for these banks is to be ever-present in their customers' financial lives. If implemented properly, these services can attract new self-employed customers, and bolster loyalty with existing ones.

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Alternative providers

Up starts and tech giants have seized the opportunity

to better service the self-employed. Research by

McKinsey & Co. identified two major effects from these

digital entrants:

1. The loss of the customer relationship

2. Margin erosion across segments

The first mobile only business bank. Live in Europe, Australia, and coming to the US in 2018.

Financing for the gig economy, built to support the Airbnb and Shopify community.

The bank account for freelancers and self-employed people, launching in the UK in January 2018. Their business bank account works out taxes, tracks expenses and helps with accounts receivable.

Sensibill makes it easy for banks to offer receipt capture and management to their retail and business banking clients. Free with their banking account, your customers can:

Effortlessly capture paper and email receipts in revenue agency accepted formats

Automatically record important information about their purchases, such as the expense category, merchant, tax, total and more, with no data entry required

Separate business expenses from personal ones via tags

Add notes about the business purpose of each expense

View itemized receipts automatically reconciled to card statements

Export receipts to their bookkeeper, accountant, and accounting software

How Sensibill helps

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If you want to learn more about how Sensibill can power your BusinessBanking service, contact us at [email protected]


References1 Upwork and Freelancers Union, “Freelancing in America: 2017”, 2017 .

2 Freshbooks, “Self-Employed Professionals & Small Business Owners in America: Embracing the Rewards and Challenges of Career Independence”, 2017

3 Upwork and Freelancers Union, “Freelancing in America: 2017”, 2017


5 Freelancers Union, Elance, and Odesk, “Freelancing in America: A National Survey of the New Workforce”, 2017

6 Upskilled, “Survey”, 2017

7 New York Post, “More people will work in the gig economy than finance by 2021”, 2016

8 Forbes, “On-Demand Work: The New Social Safety Net”, 2017

9 Freelancers Union, Elance, and Odesk, “Freelancing in America: A National Survey of the New Workforce”, 2017



12 Upwork and Freelancers Union, “Freelancing in America: 2017”, 2017

13 FlexJobs, “5 In-Demand Career Fields for Freelancers”, 2016


15 TD Bank Surveys and Research, 2015


17 YouGov for Freeagent, “UK micro-businesses at risk from ignoring their expenses”, 2015

18 Marketwatch, “What are your chances of getting audited”, 2015

19 Vatbox, “Corporate Travel Trends”, 2017

20 Intuit Quickbooks Study, 2016

21 Certify, “CFO Study”, 2017

22 NSBA, “Small Business Taxation Survey”, 2015

23 NSBA, “Small Business Taxation Survey”, 2015

24 Future of Digital Finance and WBR, “Grappling with GAFA: A 2017 Future Digital Finance Report The Need for a Data Revolution in Financial Services”, 2017

Copyright © 2017 Sensibill Inc.

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The rise of the self-employed - WordPress.com · 2018-01-02 · Freshbooks, most self-employed professionals are able to self-finance their operations, with only 1 in 5 requiring