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11th February 2016

Statistics say that a majority of new businesses will fail in their first five years due to insufficient funding. For many, it is a risk you have to take when wanting to start up your company. With the economic downturn causing banks to tighten their purse strings, many small businesses are now forced to find alternative methods of funding in order to get their dream start-up off the ground. Enter Crowdfunding.

Why crowdfund?

Crowdfunding is a way to raise money, awareness and support for a project from the people around you. The idea of Crowdfunding was launched in 2011 by MP Vince Cable, who wanted to start a fresh new funding channel for small businesses in the UK, that put particular emphasis on the power of the crowd through pledges and contributions – and so was born Crowdfunding.

Entrepreneurs and new start-ups with great ideas for a business can raise the money they need in return for rewards. The public can back their idea with pledges of money and project owners can ‘thank’ their backers by offering them a small stake in their business idea.

Does it really work?

There are a number of benefits when it comes to Crowdfunding for your business. Aside from financial backing, one of the most beneficial effects is validation for your business as well as yourself, if people are pledging money into an idea it proves that people believe in your idea and this will, in turn, create confidence in your business.

Crowdfunding is also is for life and not just for fundraising. The people who support you and your great idea become a part of your journey and will become the ambassadors for your project in the future; an example of this is the success story of The Camden Town Brewery.

Success story

The microbrewery was bought last year by industry giant AB InBev for around £85million. Just five months earlier the brewery – which only started in 2010 – used Crowdfunding to raise £2.75million before needing to expand.

Investors are thought to have been offered up to £1.25 for each share – a return of almost 70 per cent on top of their original investment within a year which is a fantastic example of how Crowdfunding can really help advance a business.

Of course, there are some downsides to Crowdfunding. Business ideas can be stolen or copyrighted if not correctly protected and if a company is unable to hit its funding target the funds raised by investors or contributors are often returned.

One last thought

If you are a small business looking for funding, Crowdfunding could be the alternative finance option for you.  The funding could ultimately help to develop your business as well as create some loyal customers along the way which is always a bonus for a new startup.

If you are a freelancer, sole trader, contractor, or small business owner, get in touch with us and see how we can help. Our clients have access to a dedicated bookkeeper, a qualified accountant, and an award-winning cloud accounting software, all included in our fixed priced monthly packages.

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