Intuit’s QuickBooks Brings Small Businesses and Independent Contractors Closer at Tax Time — and More

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Financial software giant Intuit announced Wednesday that it is adding two new tax-related features to its QuickBooks products. The release of two features might seem like small potatoes, but we’ll elaborate on why that’s not quite true.

The release will help all QuickBooks users “take the pain out of 1099 tax time for both small business owners and independent contractors” and “securely collect necessary tax information and electronically deliver tax documents to the internal revenue service (IRS) and contractors from within the QuickBooks product,” according to a press release. The features benefit both small businesses and their contractors, which could be considered the core of the expanding gig/freelance/self-employed economy, where Intuit is nurturing a growing, cloud-based software and services ecosystem.

A Solution to What?

The Small Business Administration estimates that there about 29 million small businesses in the US today. Though Intuit reports that about “30% of U.S. small businesses pay at least one freelancer annually,” this is probably most accurate for the roughly five million US businesses, with between one and 19 employees, that comprise QuickBooks’ core market. Some of 23 million sole proprietor businesses with no employees, however, could also, to a much lesser extent, engage contractors. But even if it’s 30% of just the five million businesses with fewer than 19 employees, that’s still a lot of contractor engagements — and a number that will be growing.

For every contractor engaged throughout a year, a small business must deal with the tax requirements of engaging 1099 contractors. “Small businesses,” the press release says, “often forget to collect W-9 information from contractors and have to request it over potentially unsecured methods such as text or email, putting the contractor’s information at risk. Additionally, small businesses spend hours preparing, printing, labeling and mailing 1099s to the IRS and contractors.”

The new features provide solutions to two different but interrelated business problems:

  • One of the features supports a seamless, efficient, accurate and secure way for small businesses to collect and manage contractor W9 information. According to the press release, when on-boarding a contractor, the business can send an email invite and link from within QuickBooks so that contractor can go online, create an account and securely enter the information. The information is automatically captured in the business’ QuickBooks account and can be accessed later by the businesses for tax reporting and HR purposes. Contractors can also update their information online, as well as electronically share their information, without re-entering data, when they are engaged by other businesses that use QuickBooks. As such, both the businesses and the contractors benefit.
  • The second feature (the 1099 Preparation Wizard) supports a seamless, efficient, accurate and secure way for small businesses to overcome the annual challenge of preparing and reliably sending contractors their 1099s. When kicked-off, the 1099 Preparation Wizard checks that complete W9 information has been submitted by all contractors and, if it hasn’t, sends contractors an email inviting them to enter their info online. The Wizard walks the business through a guided process that will produce a 1099 for every contractor. Contractors are emailed a link, allowing them to securely download a PDF version of their 1099. And, to ensure that statutory requirements are met, the 1099s can also be printed and mailed by Intuit.

In addition to providing small businesses using QuickBooks with a solution to these messy problems and making it easier for contractors to do business with them, Intuit is doing more than that. When contractors respond to a business’ email invite to create an online account and log in to enter or update W9 information or download their 1099s, they are actually using a kind of pared-down version of QuickBooks Self-Employed. From there, it is an easy step to upgrade and enjoy the feature of Self-Employed for $10 per month. Not only is this a kind of cross-selling, it is also one element that supports the strategic development a broader, cloud-based software and services ecosystem.

It’s the Ecosystem, Stupid

Globally today, about 6.3 million businesses use the traditional, online and Self-Employed versions of QuickBooks. At the end of Fiscal Year 2017 (July 2017), there were about 2.4 million active QuickBooks Online (QBO) subscribers, up 58% over the prior year, including about 390,000 subscribers to QuickBooks Self-Employed, which launched only two years ago. QBO growth, including international expansion, appears to be continuing at the same steady clip, based on a Q1 2018 (August-September 2017) report.

Selling software subscriptions and ancillary services to small businesses and independent contractors is not at all a bad business model. But the endgame is the development of a cloud-based software and services ecosystem within core of the emerging, growing and global gig economy.

Arguably, the trillions of financial transactions of individual contractors and small (micro) businesses (23 million and 5 million, respectively, in the US alone) make up the core, where a kind of chain reaction has begun. Small businesses are big users of independent contractors (online freelancer marketplaces have grown to scale based on small business buyers). The small businesses that use QuickBooks Online and engage independent contractors can bring contractors onto the QBO platform. Contractors can embrace QuickBooks Self-Employed and maybe grow into higher versions of QBO.

But the economic exchange and financial transactions between small businesses and contractors are not the only source of network effects; transactions with other service providers, app developers, consumers and larger businesses are, as well. The small business and contractor ecosystem achieves critical mass when it is connected to the massive, global demand for work and services from digitally connected consumer markets and digitally transformed mid-sized and large enterprises. This is something that is already underway in consumer markets, and it is just getting started with enterprises, which are beginning to turn their focus to independent contractors and small businesses as suppliers of work and services —only now possible, due to the emergence of the cloud and other technologies.

All Theory, No Practice?

The new features are good. But Intuit is also making progress in developing a cloud-based ecosystem for the emerging, decentralized, digitally connected gig economy. It is doing this by creating immediate, “microscale” value, based on connectivity, transactions and value-added functionality spanning small businesses and contractors, other service providers and, of course, the anchor of the IRS. So while there may be some theory, it's really all about practice:  ongoing, market-driven development of specific capabilities that add value to and across participants within the QBO ecosystem and is then further amplified through network effects.

To what degree Intuit will be successful (at the theoretical level) in realizing, influencing or participating in such an ecosystem remains to be seen. But its success at the practical level--delivering specific value, from software and services, to small businesses, contractors and others in this emerging QBO "gig/freelance/on-demand economy" ecosystem--is hard to argue against.

For enterprises and their contingent workforce and services procurement organizations that tend to be looking at this emerging "gig/freelance/on-demand economy" and trying to figure out what to make of it and what to do about it, perspective may be everything.   While it is important to gauge what is happening by looking at individual solutions and platforms, the bigger picture is also important. Keeping an eye on Intuit's progress in this area would seem to make a lot of sense.

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