Accounting & Finance

What small businesses need to know about crowdfunding

  • 4 min Read
  • May 2, 2016

Author

Escalon

Table of Contents

So, you’re interested in crowdfunding? It seems like everyone is these days. Yet, we find that many companies don’t have a solid understanding of how to best use it.

In this article we look at what small businesses need to know about crowdfunding. First, let’s define it.

What is crowdfunding?

It is the way businesses go about raising capital through the collective effort of friends, family, customers and individual investors.

Crowdfunding is what it sounds like. It’s the collective efforts of large groups of people primarily online through crowdfunding platforms and social media to raise money for small businesses.

Typically, if a small business wanted to raise capital, they’d write a business plan, do some market research and perhaps even build prototypes. Then, they’d start shopping for investors from a pool of banks, angel investors, venture capitalists and the wealthy.

This traditional method of raising capital is time consuming and tricky. You’ve got to approach an investor at the exact right time with the right pitch.

Crowdfunding comes at raising capital a bit differently. You have total control through whatever platform you choose to pitch and showcase your business.

You’ll spend much less time crowdfunding because it’s so much easier for you to get your business in front of a healthy Internet audience.

You also make it much easier for more people to donate smaller amounts instead of one or two people donating the whole pot.

Here’s what you should know about crowdfunding.

Anyone can invest

When you crowdfund, you don’t have to turn to banks or investors to raise money. There are no shareholder limits, and you can crowdfund from anyone.

Watch the rules

If you are looking to raise under 20 million over a year period, the rules aren’t so strict.

You can advertise with little or no restrictions, but your financial statement must be reviewed by an accountant.

Individual investors can self-certify their income without providing documentation. Plus, the SEC and states perform a coordinated review of your filing – this means you don’t have to file paperwork in each state.

If you’re looking to raise more than $20 million, look into the regulations because they are stiffer.

The door is wide-open

The best part of crowdfunding is not having to go to the bank and borrow money. You can now raise capital for your business, and give up a little equity, with less fees.

Spend time with your campaign

Allocate some time to spend on your crowdfunding strategy. Use your website and social media to build buzz about your crowdfunding campaign.

Consider hiring some marketing pros to help you launch your campaign with custom graphics, videos and other marketing tools.

The better you present your campaign, the better your shot at success.

Crowdfunding is not a set it and forget it undertaking. Allocate time for the pre-campaign as well as the campaign itself and the post campaign.

Plan on your campaign running a bit over a month, with the most successful campaigns running between 30-39 days.

Always keep your campaign page updated, and consider adding fresh content throughout the campaign period. Don’t forget to offer incentives to potential funders.

Create a social media and email marketing plan.

Create a posting strategy to keep your social media followers up to date on an ongoing basis.

Send out emails to potential funders, and then continue to send out emails to your donors and contributors. Maintain interest and build momentum throughout the campaign, and you’ll watch the dollars grow.

Final thoughts

First, you’ll find numerous websites online dedicated to crowdfunding. Some of them are specific to certain fields. Do your research and find the site that works best for your needs. Remember to look at your audience – if the site doesn’t fit your market, it’s not a good fit.

Second, always read the fine print.

Make sure you know exactly what you are signing up for. Most sites will charge you a percentage of the funds you raise. And, if you don’t raise the whole amount of your preset goal, you might not see any money.

What’s more, some sites charge you a fee if your campaign wasn’t successful.

Understand whether or not you’re soliciting donation or equity-based funding. Contact your financial advisor before stepping into the crowdfunding arena so you are fully informed of the risks involved.

Are you a new startup? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your finances, payroll, HR duties and more to us. Contact Escalon today to get started.

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

Taxes

How to Maximize Your Tax Deductions: Essential Tips for Startups in Q2

Tax season often triggers stress and complexity—especially for startups laser-focused on building products, acquiring customers, and scaling operations. Yet savvy...

Read More
Startups

Mid-Year Financial Checkup: How to Assess and Adjust Your Startup’s Budget 

The halfway mark of any given year is more than just a date on the calendar; it’s a valuable checkpoint...

Read More
Consumer Goods

Inventory Accounting 101: Navigating Costing Methods and Their Impact on Financial Health 

For consumer goods companies, managing inventory efficiently is critical—not just for operations but also for financial health and risk management....

Read More
Technology & Security

Compliance Considerations for SaaS: Protecting Data and Staying Secure

As more businesses transition to Software-as-a-Service (SaaS) solutions, data security and regulatory compliance have become top priorities. From handling sensitive...

Read More
Accounting & Finance

How Outsourced Accounting Supports Scalability in Portfolio Companies 

For portfolio companies, whether backed by private equity, venture capital, or family offices, scalability is essential for maximizing value and...

Read More
Consumer Goods

Insights from a Consumer Goods Expert: Building Brands, Inventory Management, and the Power of Outsourcing

Insights from a Consumer Goods Expert: Building Brands, Inventory Management, and the Power of Outsourcing  In a recent conversation with...

Read More
Private Equity

The Key to Private Equity Success: Strong Financial Oversight and Compliance

Private equity deals are becoming larger and more complex, making financial preparation a critical part of the process. Take Novartis’s...

Read More
Accounting & Finance

Navigating Grant Management and Financial Reporting for Biotech Startups 

Biotech startups operate in a unique financial landscape, where securing grants, venture capital, and government funding is crucial for driving...

Read More
Accounting & Finance

Financial Compliance in the Decentralized Era: What Web3 Startups Need to Know 

As the world leans into the decentralized era, Web3 startups are at the forefront, exploring the possibilities of blockchain, cryptocurrencies,...

Read More