Crowdfunding – Is it Right for Your Business? Where Do You Start? by Caron_Beesley, Community Moderator
Created: July 8, 2013, 7:50 am
Updated: July 8, 2013, 7:50 am
Share:
Share on facebookShare on twitterShare on linkedin
16 comments
Heard the buzz about crowdfunding but not sure how it can help you finance your business? Is crowdfunding even right for you?
Here’s some information and tips that will help explain crowdfunding concepts and how you can take advantage of them to fund your business.
What is crowdfunding?
Crowdfunding is a collective cooperation of people who network and pool their money and resources together, usually via the Internet, to support efforts initiated by other organizations. Unlike angel investments, in which an investor takes a large state in a small business, with crowdfunding, you can literally attract a “crowd” of people – each of whom takes a small stake in a business idea by contributing towards an online funding target. This spreads the risk among backers and creates a strong network of support for your business. If you offer equity as part of your package, your investors can also become ambassadors for your brand.
With the tough economic climate, crowdfunding has become a popular and alternative method of raising finance for a business, real estate investments, projects or ideas and has become popularized online by sites such as Kickstarter, Wefunder, crowdfunder and RockthePost.
IMPORTANT: Large crowdfunding investments are currently limited to SEC-accredited investors. Change is coming, however, and soon the investors like you and I will be able to enter the crowdfunding market. Currently, the amount an un-accredited investor can invest is capped at 5-10 percent of your income. More on this below.
Crowdfunding to become a lot easier for small businesses
Following up on from my last point above, it will soon become a lot easier for small businesses to raise money online via crowdfunding thanks to the signing into law of the JOBS Act by President Obama in April 2012. However, the SEC is still in the rule-making process and is due to publish final regulations before non-SEC-accredited investors can start financing small businesses. Final rulings are expected this summer.
What does the JOBS Act enable? Well, businesses seeking crowdfunding will be able to raise as much as $1 million a year without having to do a public offering – a step requiring state-by-state regulations. Previously, small businesses were also limited to seeking investment from SEC-accredited investors only; non non-accredited investors (you and I) can invest in start-ups.
How to prepare your business for crowdfunding
While the JOBS Act should be implemented soon, here are a few things you can do to get ahead while you wait.
Incorporate your business – It’s possible that only C corporations will be in a position to take advantage of crowdfunding opportunities. This is because S corporations have a 100-shareholder limit, effectively precluding the use of crowdfunding. Talk to a lawyer or a local small business organization like your SBA District Office or SCORE to help you explore and select the right entity.
Start writing or refining your business plan – This will help you determine the amounts of financing you are looking to raise. It can also help you outline your business expectations and alleviate any concerns potential investors may have about how valid your venture is and how serious you are about it. SBA’s Build a Business Plan tool can help you walk through these steps. It’s an easy-to-use interactive online template that you can work on, save anytime and download when you’re finished.
Get your accounting records in order – Part of the new JOBS Act will require entrepreneurs to follow SEC-compliant guidelines in regard to providing accurate, transparent and up-to-date financial statements and due diligence reports. Balance sheets, cash flow statements, financial projects and more will help you
Business Organization BUS/210 May 4, 2012 A joint stock company is when a person gives investors ownership of their business in exchange for capital. This means that the developers of the business receive a smaller share of the company’s profits, while the investors of the business will receive a greater share as their investments are what funded the operation. For example, I person may have an idea to create a new exercise program and build at video exercise business. To build capital for this venture…
Any business has a financial responsibility to continue the maintenance of proper financial records. This is imperative for two reasons to maintain a proficient management, and also to acquire and obtain a respectable image needed for outside business investors and creditors. Financial statements is symbolic of the businesses financial situation and is critical for employees, investors, and stakeholders, as well as creditors. Any business is bound to have interests outside the business since it needs…
right and assets of investors, and regulate relations pertaining to foreign investment. With its open-market economy, Mongolia has improved its economy rapidly, and then it became a member of World Trade Organization in 1997. To build a better competitive legal environment, the Parliament of Mongolia amended set of laws on taxes in June 2006. These laws ensure that the taxes of business entities has decreased by 5% each and became 10% and 25% which is a big concession to investors in Mongolia. Amendments…
Financial Statement Differentiation ACC: 561 December 17, 2012 Cynthia Reyburn Financial Statement Differentiation Financial information is important for investors, creditors, and manger of an organization. This data provides useful information to make informed decisions. Each of these different groups has different needs and requires different data. The most common financial tools are: income statement, retained earnings statement, balance sheet, and statement of cash flows. Income…
entrepreneurial ventures. This marker consists of a diverse set of high ner worth individuals (business angels) who invest a portion of their assets in high-risk, high-return entrepreneurial ventures. The emerging consensus of the characrerisrics of the individual investor is that of a well-educated, middle-aged individual with considerable business experience and a substantial net worth. These informal investors appear to prefer investing in the early start-up stage of the venture and, if given a choice…
equity financing enables businesses to share risks with investors, and this option is particularly necessary for businesses that need to generate more cash flows as there is no need for debt payments unlike debt financing. Furthermore, since investors have a direct stake in a business they are likely to offer their assistance. In essence, the business gets access to cash on hand, and since investors have a long-term view about the business, they do not expect immediate returns to their investments…
Legal Forms of Business Paper Law/531 June 3rd, 2011 University of Phoenix Legal Forms of Business Paper Selecting the best form of operating a business depends on the type of business the owner wants to run. The owners have to pick the structure that best meets their needs. “The selection depends on many factors, including the ease and cost of formation, the capital requirements of the business, the flexibility of management decisions, government restrictions, personal liability, tax…
Business Organization Mindi Hackenberg BUS/210C September 5, 2013 Carrisa Baptiste Business Organization In a small town named Mechanicsburg, Pennsylvania a man by the name of Crasher took his love for cheerleading and decided to open an all-star cheerleading gym. He wanted the name of his gym to be Cheer Tyme. Before doing following through with his passion he had lots of business planning and forms of business organizations to think of! To start he needed to find some interested investors…
needed in the business world today. The individual financial statements have certain information within them and I will give details of what is necessary to complete each financial statement. I will provide information of why investors, creditors, and managers use these forms in their everyday decision-making and what they are looking for within the financial documents and why. There are four different financial statements applied in the business world today.…
used by accountants, business owners, investors, and employees. In this paper, one will discuss the four basic financial statements: balance sheet, income statement, statement of retained earnings, and statement of cash flow. One will also describe the purpose of each of the four financial statements, how the financial statements would be useful to internal users such as managers and employees, and how the financial statements would be useful to external users such as investors and creditors. Purpose…