Financial Issues Around Crowdfunding
Crowdfunding is potentially a great way to raise money for a project, giving you the chance to make a dream come true while at the same time offering incentives for people to support you. However, there are issues to be aware of before you commit to a project and here are a few.
Different platforms work in different ways – some are ongoing, allowing you to get a steady stream of revenue. Others work on specific targets within a certain time frame, sometimes on an “all or nothing” basis.
This is why you need to be aware of what will work best for your project – can you afford for your campaign to fail?
This is an issue with budgeting – digital downloads and other non-physical rewards (for example a cameo appearance in a comic book, shout outs on videos etc) are ideal because they do not require postage and reduce costs.
Some crowdfunders allow you to include shipping as a separate cost- this is recommended as it means that you do not have to increase the target amount to factor in this cost.
It may not necessarily come up but there have been reports of companies using crowdfunding sites to capitalise on intellectual properties that have not had a patent applied for. If in doubt talk to a legal professional about registering your intellectual property.
Check the rules
Some countries have different rules on whether money accrued from crowdfunding counts as capital or income. There are also different rules in different countries with regard to how this is taxed – check the small print on the platform’s website and if you are not sure contact them directly and ask or seek legal advice before proceeding.
Be wary of scams
Be careful about anyone wanting to offer marketing services or claims to be able to “hack” a platform in order for you to reach your intended target. If you are unsure research anyone who contacts you to get feedback and to see if their services are indeed genuine (as well as getting an idea on whether or not they genuinely could benefit your project)
This is where an individual or company can raise funds via offering a stake in the business (there are still some rules restricting this kind of crowdfunding, check advice from relevant websites in your local area).
If you do choose to use this particular type of fundraising treat it like any other pitch to an investor- make sure that you have figures to hand and ask yourself if the valuation of your business is realistic.
Contact a professional
At Larcomes Financial Services we have both the resources and the experience to help guide people in both their short and long term financial future. If you have any concerns regarding setting up a crowdfunder or want advice regarding the potential financial issues before setting one up please contact us today and we will be happy to discuss your ambitions and future plans in more detail.