Monday, July 15, 2013

Crowdfunding – Is it Right for Your Business? Where Do You Start?

Crowdfunding is the new option for financing that has become popularized over the internet. This alternative method raises money for businesses, real estate investments, and projects by creating a network of collective and cooperative people who pull their resources and money together. This is usually done via the internet; spreads the risk among backers; and builds a strong support system for a business or idea. Crowdfunding is also becoming easier for small businesses thanks to the JOBS Act which was set forth by President Obama in April 2012. This law will soon allow non-SEC-accredited investors (you and I) to finance start-ups. Although this law has not been implemented yet, there are some steps that businesses can take while waiting. For starters entrepreneurs should incorporate their businesses. Certain entities such as S Corporations, which are subject to a 100-shareholder limit, will not be able to take advantage of crowdfunding. So it is important to explore options and select the right entity. Another step is to write and refine a business plan to have an idea of how much financing is needed and outline business expectations to alleviate investor concerns. It is also very important to get accounting records in order and to get a CPA or accountant involved. One of the requirements for the JOBS Act is to follow the SEC-compliant guidelines which are to provide accurate and up-to-date financial statements. A CPA will need to review these statements and be a consultant to stay on top of legislation. In order to have a successful crowdfunding an entrepreneur should understand the commitment to this financing option and have a clear and careful strategy. They also need to have the necessary resources to sell their pitch and create a buzz around their idea. Another important tip is for entrepreneurs to be prepared to answer questions that investors might have such as: How do you plan to spend the money? Do you have an exit strategy?  So as you can see crowdfunding is a great source of financing and can be beneficial to small businesses. There are some existing websites that are probably the best option when it comes to raising funds. However, be aware that these third-party websites act as the middleman and may charge fees. So when in doubt consult a professional to make sure you are doing the right due-diligence.    

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