7 Crowdfunding Red Flags To Avoid

Is crowdfunding a good way to get money for your business? It can be. For example, you may be able to secure valuable capital with low or no interest from friends and family members. Other entrepreneurs take crowdfunding online to convince everyday people to invest in a great idea. These concepts can work well, but you need to avoid a few potential issues:

1. Brand Reputation

Put simply, people can’t trust you if they don’t know anything about your business. This goes for angel investors and crowdfunding supporters alike. Your first step needs to be giving plenty of information about your business goals, employees and concept. You want contributors to see the people behind the statistics.

2. Honesty

It’s getting harder and harder for users to trust businesses online. Trust is vital for getting this type of financing. A sad story or nice images isn’t enough. You need to be upfront with people, clearly laying out the project, your goals and where you are currently. Don’t exaggerate and never lie. It’s tempting to make sweeping claims, but they can come back to haunt you.

3. Visibility

There are many different crowdfunding platforms available, and you probably won’t have time to manage campaigns on them all. You may need to select a single option. Analyze your needs and the data from sites carefully, such as their total visitors, type of visitors and terms of use.

4. Targets

Contributors want to feel like they’re really having an impact. Instead of setting a massive target and only achieving a tiny fraction, divide larger projects into smaller steps and set targets based on them. This gives people a sense of accomplishment and encourages others to participate when they see you’re close to reaching a goal.

5. Advertising

The right time to advertise a crowdfunding campaign is well in advance, not after it has already kicked off. You want a lot of interest from online supporters and local residents so you have a strong start.

6. Rewards

Be clear about what contributors receive for their support. Above all, deliver on your promises. Failing to provide rewards on time destroys your credibility while following through has a positive effect. It encourages people to involve friends and family members.

7. Taxes

Different states have different rules related to income from crowdfunding. Is it a gift or a business investment? The difference can have a significant impact on your taxes. Avoid complications by consulting with an expert.

There are many options for getting business capital to drive expansion. Crowdfunding has grown in popularity in the last decade as a solution for business financing.

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