Crowdfunding is the pooling of resources, essentially financial resources, to finance a business venture. Not entirely a new concept, pooling of funds is already a long established business practice in Brisbane. Bookkeepers can either record funds raised in crowdfunding campaigns as part of your equity or a liability, depending on how you set up your fund raising campaign.
Types of Crowdfunding
Product Payment – A way to raise funds is by selling your products or services to customers before you can create them. This is especially popular among start-ups and done online. Several crowdfunding sites let entrepreneurs present and sell their products to its captive audience. Delivery of the product is usually subject to the success of the campaign, when the targeted capital is successfully raised. Many fundraising platforms do not charge pledgers until the target is reached. Prices are significantly lower than the targeted market price, to better entice early buyers. Your Brisbane bookkeeper will record funds raised in this type of crowdfunding as a liability.
Equity Share – Equity share crowdfunding campaigns target investors instead of buyers or consumers. This is the more common way of raising funds for your business. But instead of offering products in the future, you are giving shares of your company. Investors gain from the increased value of your company. They also stand to lose if you fail. Funds raised are credited to your equity.
Donation – This is common to non-profit or non-business endeavours. Funds are raised as a donation, help, or gift, given as a goodwill and without the expectation of anything in return. Donation crowdfunding are often set up to help individuals in need, fund non-profit organisations, or finance community projects.
Advantages of Crowdfunding for Small Business
Access to Funds
Solid financing is essential to setting up a business. Crowdfunding enables startup enterprises to finance projects they would not be able to afford with their own finances. Online platforms get you the needed exposure to investors or patrons from all over the world, and unlimited funding.
Validation of your Product/Idea
A crowdfunding campaign is a good barometer of your product’s success. Selling your product, before it is even created, is hard. But if you get a good backing, you’re significantly assured of its success. This means people believe in your product enough to pay for it in advance or invest in your company.
Setting up a crowdfunding campaign for your product is also promoting it to its target market. Crowdfunding sites offer good promotional platforms and social media exposure for campaigns. You also develop a following from your pledgers and investors, who will likely share, market, and promote you as well.
To gain interest from possible clients and investors, a thorough presentation of your product is included in the campaign. Before they invest or pledge, fund raisers will review your product and proposal. You will get feedback, suggestions for improvement, and other product and company inquiries. These will give you the chance to improve or change your product before you even create it.
Disadvantages of Crowdfunding
Because you need to provide details of your product or idea of the product in your presentation, you are also giving your idea away, free for copycats to create. Crowdfunding is also regulated, with fund limits and taxation measures to deal with.
Do you think crowdfunding is the perfect solution for your next business startup? The key is to present your business from the investors’ or buyers’ perspective. A good Brisbane bookkeeper can help you create a great presentation that will attract the most investors and generate the funding you need.