Crowdfunding Concerns for Small Businesses

Imagine if you could raise money for your idea through the combined effort of interested friends and strangers. Now, imagine that it was easy and fun. That’s the story of crowdfunding. Crowdfunding sites provide a platform for anyone to ask the general public for money in return for a reward.

You have an excellent idea for a business but don’t have the funds to make it happen. Crowdfunding can help you reach your goal using sites like Kickstarter and IndieGoGo. Should you be worried? Yes, potentially. If you’re unsure about crowdfunding your project, do some research first. You’ll need to do a little preparation or have some knowledge of the tech world before you get started.

How Do I Begin With Crowdfunding?

When you make an agreement to receive funding in exchange for a reward to your supporters, it amounts to a contract. That means you must be clear about what you are offering them and what they are getting. It’s essential to be clear in your communication about the product or project you’re trying to get funded. You need to explain what you want to provide, and what you won’t provide.

If you make promises about a product or service, you must deliver on them. If you don’t, or if the product is not provided at the quality promised, you could be liable for a breach of contract claim. On the other hand, backers love projects that over-deliver, so don’t wait until your campaign closes to think about these details!

If the former occurs, an individual can bring a claim on their behalf, but it could also become a class action lawsuit on behalf of many of your backers. That can be a lengthy, troubling form of combat for all involved. Additionally, if you don’t deliver what you promised on crowdfunding sites, you may be required to refund backers their money per the clauses of the website.

How To Protect Against Such Circumstances

To keep your donors happy, communicate regularly with them about the status of your campaign. You can use this communication line to build trust, letting them know about the progress of your campaign and how their money is being used. This is a critical word for any online enterprise—Trust.

As an additional precaution, forming a limited liability company or other corporate entity is wise. These arrangements ensure that your assets are protected if you are ever forced to pay a legal judgment against you.

Taxes and your Campaign

Remember that any income from your crowdfunding campaign is taxable. You will have to report this income and pay taxes on it. Unfortunately, It can be complicated if you need to track related expenses or if you will incur them in future years. It’s best to get professional advice so you can avoid problems with the IRS later on. Your project is unique, but taxes are not. We’ve handled them for thousands of individuals and companies just like you, so we understand the challenges you may face.