Have you ever watched the television show Shark Tank and thought, “That could be me”? You are not alone. The show is a testament to the entrepreneurial spirit being alive and well in the United States. Investors on the show, including Dallas’ own Mark Cuban, have helped many individuals find success.
Shark Tank also reminds us that success does not easy. Entrepreneurs who share their stories on screen often talk of hardship, struggle and sacrifice as they tried to get their businesses off the ground. Obtaining funding from a single investor is one option, but it is not the only way to accomplish your goals.
Crowdsourcing and crowdfunding are two great tools for entrepreneurs who want to turn an idea into a startup business. Crowdfunding through sites like KickStarter alone helped entrepreneurs across the globe raise approximately $16.2 billionin 2014, according to a report from the research and advisory firm Massolution.
Even a few thousand dollars of the $34.4 billion entrepreneurs are expected to raise through crowdfunding in 2015 would presumably go a long way to help your efforts, but what are crowdsourcing and crowdfunding?
- Crowdsourcing: Employees are expensive. New businesses often do not have the resources to train the numerous employees with varied skills necessary to complete projects. Crowdsourcing provides you with access to copywriters, SEO strategists, programmers, artists or other skilled workers without putting anyone on your permanent payroll. You can simply use a crowdsourcing site, select the workers you need and pay them on an individual project or task basis.
- Crowdfunding: Single investors are demanding. They take significant risk when they contribute money they could lose entirely, which is why they often want a large percentage of the profits or ownership in the company. Crowdfunding allows you to seek investment funds from many sources without giving up a big part of your business or profits. In many cases, investors will simply donate the money without condition. It can even help you create free PR, built-in marketing and a network of loyal customers.
Careful planning is an important part of any business venture. You need to think about much more than how you will accomplish projects or where you will find the necessary funding. Considering the tax implications of any decision needs to be a part of your business plan as well.
If you are considering using either crowdsourcing or crowdfunding, it is prudent that you talk to a business tax attorney. Understanding the potential tax implications can help you avoid serious and extremely expensive tax problems down the road.
For instance, if you are offering a product in exchange for a donation, you could be subject to sales taxes. If you don’t pay, you could wind up owing the tax plus thousands of dollars in interest and penalties.