Accounting News

Tuesday, August 28, 2012
Accounting Concerns of Crowdfunding

There are new options for businesses looking to get start up funding. Most people are familiar with traditional  funding methods. The owner commonly uses their own capital or perhaps mortgages their home to come up with the start up money. With the decline in home values and the more strict lending policies have made this more difficult. 

Another method is to take out a small business loan. This is also more difficult in today's funding environment. Most banks have slowed down their lending to small businesses and start-ups. So banks are also a poor option for many small business owners.

For some start ups there is angel investors or venture capital firms. These provide funding for many technology start-ups. They provide the capital to get the business going in exchange for an equity stake in the company. Many offer management help to the company and its founders. This type of funding is popular with companies expecting rapid growth and have an exit strategy for the investors.

But there is another emerging funding option called crowdfunding. It is using the internet to garner a large number of small amounts. It may be as little as a few dollars. Websites like kickstarter will allow companies to offer products for pre-sale. They then use the money to develop and manufacture the product. 

This new funding is allowed in the 2012 JOBS Act. The SEC allows portals to collect the funding with the exception of equity businesses. It is not entirely clear what record keeping or auditing will be required of the business's accountant. More will be determined after the SEC finishes offer requirements. 

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