Category: Gig Economy

Lending and the gig economy

On EconomicVoice.com, the University of Edinburgh Business School’s Jonathan Crook highlights the risk to sovereign professionals caused by the misalignment between traditional lending and the gig economy.

As Crook observes:

while this in-the-moment working arrangement can be sustained in the short-term, only thinking about the now may lead to long-term financial issues.

because:

For years, traditional lending has focused on assessing stable consumer income to determine financial risk. Those with full time and stable jobs will fare better. But ‘gig economy’ workers clock up individual hours which – from a credit risk modelling perspective – may not be seen as joined up, consistent or predictable.

It’s an age-old problem. While the freelance / gig / sovereign professional economy has boomed in recent years, overly conservative bank, stuck to their risk-averse playbooks, have failed to move with the times.

Daniel Pink highlighted the problem in his book Free Agent Nation way back in 2001.

However, in many ways, the security of “”full time and stable jobs” is an illusion. An employee who loses their job has no network or process to fall back on. If a freelancer with a portfolio of clients loses a client, he or she has a basket of other clients to fall back on; the risk is spread. And, if the sovereign professional is an interim manager or “super-temp” they have an established network of agency relationships to help them towards the next project.

There is a clear market need for a solution. Crook suggests that:

it is possible some agile lenders will see this as an opportunity. Instead of examining the consistent hours an employee works, it’s not inconceivable to think they may begin tracking how many years someone has worked in this way and the overall hours they’ve been paid for.

Pink’s solution, at least at the higher earning / larger lending end of the scale was the issuing of shares or bonds, citing examples like Bowie Bonds and the fact that boxers (amongst other athletes) fund their own training by selling shares in “themselves”.

Whichever way it goes, the lending market needs to adapt and, in all likelihood, the solution won’t come from traditional banks at all. A player like PayPal – who have already disrupted small-business funding with their  PayPal Working Capital product – will take a sensible, reality-based view that recognises that a sovereign professional’s established free cash flows are at least as secure as the historic wages of an employee.

(Disclosure: PayPal is a client of my business, Burning Pine)

 

Photo by Tim Evans on Unsplash

How to manage people who are not employees – @FastCompany

Sound advice for the other side of the equation: how to manage a sovereign professional.

Before you hire a freelancer, be crystal clear on your needs,” advises Jon Youshaei of the comics site Every Vowel. “I always ask myself: Do I have a vision of what I want? If I don’t, I can’t effectively communicate it when giving feedback to a freelancer, and it’ll just end up wasting time and money.”

Vision is critical, but it’s also where a freelancer can add real value to the client … as long as the early stage relationship isn’t abused. How often does the sovereign professional feel their just being milked for free consultancy?

Read the full piece, here.

 

Photo by rawpixel.com on Unsplash

Terrifying and totally worth it. The freelancing life by @leifpettersen

I came across this and can relate to it. I’m sure many sovereign professionals can.

Freelancer Leif Pettersen looks at the pros and cons of our wonderful lifestyle:

  • Do you have a saintly, bread-winning spouse to help fill income gaps?
  • Are you free of dependents, expensive hobbies and vanity possessions, including pets larger than goldfish?
  • Are you cool with handling most of if not all of your own accounting, project management and the godawful networking?
  • Does your ability to manage anxiety equal that of a discount shark dentist?
  • How long can you go between checks without completely unraveling, abandoning your gig and getting a job at the local pizza joint? More than six weeks?

If you answered yes to at least two of these five questions, I’m liking your chances.

Read the full article, here.

 

Photo by Annie Spratt on Unsplash

Self-employed drive UK public finance surplus

The UK’s accounts had an unexpected monthly surplus in July – the first July surplus since 2002 – driven by unexpectedly large tax receipts from self-employed individuals (see The Telegraph, here).

Such news helps highlight the growing importance of self-employment and the Sovereign Professional.

Of course, because of the B2B nature of their work, many Sovereign Professionals will actually be employees of their own limited companies and related tax payments will not form part of these figures.

 

Photo by Lauren Mancke on Unsplash

Freelance workforce predicted to rise to 43% by 2020 – @Due #freelancing

Here’s a great overview of the Gig Economy, from Due.com. It’s US-centric, but the findings are transferable. UK readers will just need to translate the tax and pension information.

Many Americans are saying goodbye to the traditional 9-5 lifestyle in favor of a much more flexible schedule that works around what they need. In 2016, nearly 53 million Americans were freelancers, that’s 34% of the workforce!

Much of the recent press in the UK has centred on the negative aspects, particularly of large “employers” possibly bending the rules to define workers as self-employed to reduce the employers’ cost base.

We shouldn’t ignore the very real benefits that the growth of freelancing brings for willing workers and for the economy as a whole.

Well worth a read.

Image credit: https://unsplash.com/@alejandroescamilla