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What you need to know about crowdfunding
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Updated July 30, 2022
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In this article
see it all
In this article
- What is GoFundMe?
- Crowdfunding versus traditional funding
- Pros and cons of crowdfunding
- How to Start a GoFundMe Campaign
- Other crowdfunding options for businesses
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Crowdfunding has become a popular way for small business owners to access finance. There are many of these options for commercial use, with different platforms catering to different audiences and types of fundraising. GoFundMe is one of the most well-known crowdfunding platforms, making it an attractive option if you're looking to raise capital for your business.
However, before starting a GoFundMe campaign, it's important to understand how GoFundMe works, how crowdfunding compares to traditional business funding options, and the steps involved in launching a GoFundMe campaign. We look at the pros and cons and help you determine if using GoFundMe is right for your business.
The central theses
- GoFundMe is one of many crowdfunding platforms that small business owners can consider as an alternative to traditional commercial financing.
- The GoFundMe platform caters to fundraisers that impact the community, are connected to meaningful stories, or are related to an initiative that donors want to support.
- Before launching a crowdfunding campaign, it's important to consider the time and effort required to run a successful fundraiser. Donors often expect updates on how funds are being used.
What is GoFundMe?
GoFundMe is aCollaborative fundingPlatform that can be used in different ways, both for private and business initiatives. To raise money, first create a fundraising page with photos and videos that explain the story behind your fundraising need and the amount you want to raise. Then share your fundraising page with friends, family, co-workers, potential clients and others. People can choose to donate to the cause and help it reach its goal. GoFundMe also provides tools to monitor and manage your donations and communicate with each of your donors.
observation
There are two main types of crowdfunding for businesses: donation-based or reward/purchase-based, where individuals donate money to obtain products; It isInvestimento-Crowdfunding, in which a company sells shares of the company in exchange for capital injections.
Crowdfunding vs. traditional finance for companies
When considering your business financing options, it's important to weigh the pros and cons of different options. Here are some of the similarities and differences between crowdfunding and traditional corporate finance.
| Collaborative funding | Traditional financing for companies |
|---|---|
| Typically, you don't need to meet any specific financial requirements to create a donation page. | You will likely need to complete an application and meet funding requirements. |
| You need to create a campaign with updates on this and continually monitor how your business is using the funds. | Traditional trade finance typically does not require updates on what the funds are being used for. |
| When you can access funds varies by crowdfunding platform; Wire transfers through GoFundMe can take 2-5 business days. | Some financing options provide access to cash within 24 hours of application approval. |
| Money raised usually does not need to be refunded. However, you must fulfill any promises made to donors, the platform may charge fees, and funds raised may be honored.taxable income from business operations. | Depending on the financing option, you will likely have to pay back the money under the terms of the contract, usually with interest. |
Pros and cons of crowdfunding
Benefits
Potential business presence for a large audience
A platform to experiment with new ideas
Usually low risk
Disadvantages
Management and monitoring can be time consuming
often chargeable
Sometimes comes with restrictions
May be considered taxable income
A poorly managed campaign can generate negative publicity.
benefits explained
- Potential business presence for a large audience: Crowdfunding platforms often rely on an extensive social media presence. Getting your followers to share the fundraiser on their own social networks can introduce new potential customers to your business.
- A platform to experiment with new ideas: If your crowdfunding campaign includes donors who support a specific product or concept, this can be a good way for your business to assess the market and potential demand.
- Usually low risk: Owners of crowdfunding companies generally do not relinquish control of their businesses. So if your bounty-based crowdfunding efforts fail, you typically don't need to pay donors back.
Disadvantages explained
- Management and monitoring can be time consuming: It's not easy to create a compelling fundraiser that resonates with others. You also need to keep the campaign up to date, as sponsors often expect to be kept up to date on how the funds raised are being used.
- Often charged:The fundraising platform you use may charge you, which means you won't receive the full donation amount.
- Sometimes comes with restrictions: Depending on the platform, you may need to meet certain requirements before you can access the funds. For example, you might not receive any money until you reach your goal.
- May be considered taxable income: Depending on the type of crowdfunding used, the funds raised may be taken into accounttaxable income from business operationsby the IRS.
- A poorly managed campaign can generate negative publicity.: Fundraising efforts that look unprofessional — whether through low-quality images or videos, poor communication with donors, or anything else that could create a poor experience for supporters — can damage your corporate image and turn away customers in potential.
How to Start a GoFundMe Campaign for Your Business
Starting a GoFundMe for your small business is a simple process. However, it will take time and effort to maintain the campaign and attract the attention of potential donors. Below are the steps required to set up GoFundMe for a business.
Create your fundraising page
Start your business campaign by creating an attractive fundraising page and setting a financial goal. Add high-quality photos and videos that tell your story. Choose a catchy fundraiser title and spend some time reflecting on the human side of business success. Perhaps the company is an integral part of the community and people want to help; maybe it's fueled by an inspiring story about a veteran starting his own startup; or the company supports a cause that is important to donors.
observation
People want to help other people, so be open and honest about your financial needs and the deeper story behind what the funds are being used for.
Share your fundraiser with others
The next step is to publicize your fundraiser. Promote the campaign by email, SMS, phone calls and social networks. Create a fundraising hashtag and ask others to share it with their social media followers. Think about how the funds will be used and who the deal will affect, then reach out to those people or groups to let them know about the campaign. Also, consider getting press coverage for the cause.
Collect donations and upgrade donors
In most cases, you can withdraw donated funds at any time during the campaign without affecting the fundraising status or tracked progress towards your goal. It's important to thank donors for their contributions and keep them updated on how the fundraiser is progressing and what the money is being used for.
observation
Many of your donors could be potential customers, so build rapport and maintain a good relationship with them. Post-campaign follow-up emails to keep donors up to date with business news can be a great way to build community.
Other crowdfunding options for businesses
There ismany different crowdfunding opportunitiesfor small businesses. Depending on your fundraising purpose and goals, you may find that a certain platform suits your needs better than others. Here are some other popular platforms:
- Kickstarter: Specially developed for companies that are raising funds to create a product
- Indiegogo: Focus on innovations that need funding, especially technology projects
- Patreon: Allows artists and creators to offer subscription services
Is GoFundMe a good fit for you?
GoFundMe is typically a platform that supports social causes and fosters a sense of community. If your fundraising goal has a positive impact on the community, has a meaningful story behind it, or relates to a cause others might want to contribute to, GoFundMe might be a good fit for your business.
Frequently Asked Questions (FAQ)
How much does GoFundMe charge?
GoFundMe does not charge users for creating a fundraising site; However, for campaigns aimed at individuals or businesses, a transaction fee of 30 cents plus 2.9% is automatically deducted from each donation.
What happens when a GoFundMe page doesn't meet its goal?
There is no penalty if a GoFundMe fundraiser does not reach its target amount. Any funds donated will still be received. Fundraisers can continue to receive donations even after a goal is reached, as long as the organizer chooses to keep the campaign active.
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Sources
The Balance only uses quality sources, including peer-reviewed studies, to support the facts in our articles. Read oureditorial processto learn more about how we verify our content and keep it accurate, reliable and trustworthy.
PUNCTUATION. "Simple steps to choose the right financing”, page 3.
PUNCTUATION. "Should You Use Crowdfunding To Fund Your Business??”
US Small Business Administration. „finance your business.“
Piccerelli, Gilstein & Co.“Do I have to pay taxes if I'm the recipient of a GoFundMe campaign?"
GoFundMe. „Simple pricing, powerful fundraising.“
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