March 4, 2016 Financial Management en_US Keeping your expenses as low as possible in a startup can make the difference between survival and failure. Using freelancers can help you do that. Learn how. How Leveraging Freelancers Can Keep Your Burn Rate Down
Financial Management

How Leveraging Freelancers Can Keep Your Burn Rate Down

By QuickBooks March 4, 2016

Hiring freelance workers can save your business valuable time, money and resources. Last year, a Freelancers Union survey found that approximately 35% of the total American workforce are freelancers. Forbes predicts this number will increase to 50% by 2020. While this national shift in job behavior is due in part to the availability and development of new technologies like mobile computing and virtual conferencing, freelance workers can provide a cost-saving solution for small businesses.

That cost savings will have the greatest effect on your business’ burn rate. Understanding these key concepts can help your business reduce its burn rate by leveraging the freelance workforce. Before we continue, however, let’s review the concept of burn rate.

What Is Burn Rate?

Conceptually, your business’ burn rate is the amount of money spent to cover your expenses that your current income doesn’t cover. For example, let’s say your business requires $80,000 a month to function and that you have an existing cash reserve of $280,000. Let’s also assume things are lean, and the business is only bringing in $40,000 a month. If the trend continues, you’ll have an operating deficit, or burn rate, of $40,000 per month. When you divide the $280,000 by the burn rate of $40,000, you find out you’ll run out of cash in seven months.

You can alleviate those dim prospects by two ways. Either you bring in more cash, or reduce costs. Hiring freelancers can help you do the latter.

Identify Freelance Projects

Before hiring a new freelancer, create a list of the most suitable projects for a non-traditional hire. Projects with the least amount of overhead are ideal for freelance workers because there is less room for misinterpretation. If possible, select projects directly linked to your company’s burn rate and determine where a freelance job may reduce expenses.

Assigning each project with clear and attainable goals increases the likelihood your freelance hire will succeed. While you may be less inclined to hire a freelancer to handle business accounting, your company’s blog can thrive by leveraging talented freelance writers. As your business develops, you can reduce workforce turnover by moving valuable freelancers into full-time positions.

Cut Turnover Costs

Most businesses encounter a variety of hidden costs during an employee turnover. You are more inclined to lose traction on important projects, and you’ll incur new expenses during job vacancies (e.g. new hire training, job posting fees). Rather than spending valuable resources filling a vacancy through lengthy hiring procedures, find a freelance worker to quickly pick up the slack and cut expenses.

Even a temporary freelance hire keeps your business running smoothly while you search for a more permanent solution. Cultivate a strong working relationship with your freelance worker to keep him or her coming back for new assignments. A case study by Columbia University finds that high company culture directly correlates with job turnover, decreasing turnover probability from 48.4% to 13.9%.

Promote Company Culture

Organizational culture and behavior play an important role in the success of your workforce. If you want your business to gain the most from an alternative hire, you need to foster your company culture. Fortune states that company culture is key to competitive success.

It’s important to take this into consideration when collaborating with non-traditional workers inside your organization. Incentive programs, webinars and physical meet-ups are effective strategies for exposing your freelance workforce to your company’s culture. Retain your freelance workers by treating them with the same professionalism and respect as you would a full-time employee.

Create Freelance Jobs

With over 53 million freelance workers in the United States, many businesses are creating new jobs specifically for the freelance workforce. Independent contractors provide a wide range of professional skills applicable to any type of business. If you or your employees are spending valuable time on projects better suited for freelance workers, you may want to reevaluate your resource management.

For example, if you spend 10 hours each week writing blog posts and sharing company news on social media, hiring a freelance writer can save your company money in the long term. According to, the top five jobs for modern freelancers include web development, graphic design, content writing, online marketing and video creation. When you’re short on manpower or have unexpected projects to complete, freelance workers can help bridge the gap without consuming valuable resources.

Identify Project Scope

Detailing the scope of each project helps cut down on unexpected expenses that may arise. A clear scope ensures that your freelance workers operate within the guidelines for the project. The scope helps avoid a situation where a freelance worker requests reimbursement for providing services not outlined in the project scope.

If you’re trying to lower your burn rate by hiring freelance workers, be sure to communicate the scope throughout the project lifespan. Create a forum for feedback throughout the project to ensure everyone involved is up to speed.

Establish Milestones and Deadlines

Excess project management can take valuable resources away from your business. The success of your freelance hire is greatly dependent on strong communication. Determine a project start and end date whenever possible. This allows your freelancer to plan his or her own schedule to complete the project.

If your business operates on multiple deadlines, detail these clearly in the project agreement you establish with a freelance worker. Ascertain each milestone in advance to eliminate the need for follow-up conversations. Hiring freelance workers for smaller projects with staged deadlines increases the likelihood for success while lowering your company’s burn rate.

If you’re currently utilizing freelancers for your business, check out how to prepare 1099s when employing independent contractors.

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