How will crowdfunding look on my balance sheet?

By Jumpstarter

So you are considering crowdfunding to raise your capital? While this is important, what is even more important is knowing how your decision is going to affect your financial statements.

Financial statements are important because these are the documents you would provide to the bank if you need a loan. You would also provide financial statements if for example you are in the process of negotiating merger with another company.

Your financial statements will tell the story of your business and therefore it is important to know what story they are going to tell.

Crowdfunding in South Africa is taking off. While Jumpstarter crowdfunding can raise large sums of money for your idea, the key is correctly managing the crowdfunds that successful Jumpstarter Project Creators have received. Jumpstarter is a rewards based crowdfunding platform.

Crowdfunding brings exciting dimension into your financial statements. We will provide a basic example of how it will look on your balance sheet below:

1. HOW WILL REWARDS BASED CROWDFUNDING REFLECT ON MY FINANCIAL STATEMENTS?

Rewards based crowdfunding creates a small obligation on the part of the owner.

The balance sheet will look as follows:

  • Assets
    Cash and cash equivalents xxx
    (Increase in cash from the contributions received from crowdfunders)
  • Equity
    Share capital xxx
    (Increase in equity from the contributions received from crowdfunders)
  • Liabilities
    Crowdfunding liability xxx
    (Creation of a liability to the value of the reward that was promised from crowdfunders)

Just a quick refresher, rewards based crowdfunding happens when you offer an investor a reward for contributing to your business idea. As a result, your financial statements need to show that you owe a portion to the investors as a reward for their investment.

Also note that although there is an increase in equity, the crowdfunding investors do not hold those equity shares. The shares are owned entirely by the owner. This means that all profits are attributable to the owner or set of owners.

Crowdfunders are entitled to the reward that they signed up for when contributing to the business idea. This is reflected in the liability section of the balance sheet.

2. WHAT WILL EQUITY BASED CROWDFUNDING LOOK LIKE ON MY FINANCIAL STATEMENTS?

Equity based crowdfunding creates a capital contribution from the investors.

The balance sheet will look as follows:

  • Assets
    Cash and cash equivalents xxx
    (Increase in cash from the contributions received from crowdfunders)
  • Equity
    Share capital xxx
    (Increase in equity from the contributions received from crowdfunders)

Equity based crowdfunding is where investors buy a share in the company that they are contributing to.

There is a subsequent increase in cash and an increase in equity. The cash comes from the contributions received. The increased equity contains the shares of the initial owner and the new crowdfunders.

Crowdfunding investors will enjoy the benefits of share ownership. This includes dividend receipt and share appreciation.

Conclusion

Be sure to understand how funding can impact your financial statements. Financial statements tell the story of your business, and you need to know what story it is going to tell.

You now know the impact of rewards based crowdfunding and equity based crowdfunding on your balance sheet.

4 Comments

  1. Eugene

    Jumpstarter offers us entrepreneurs an opportunity many organisations are not willing to give. Firstly I am going to cover all corners of my business idea, in order not to surprise a potential investor by not being able to answer some questions they may have, regarding my very own idea!

    • Jumpstarter

      Thanks Eugene,

      We started Jumpstarter as a new way for creators and audiences to work together to make things. The traditional funding systems are risk-averse and profit-focused, and tons of great ideas never get a chance. WeΒ believe Jumpstarter could open the door to a much wider variety of ideas and allow everyone to decide what they wanted to see exist in the world.

      Jumpstarter is full of ambitious, innovative, and imaginative ideas. Many of the projects you see on Jumpstarter are in earlier stages of development and are looking for a community to bring them to life. The fact that Jumpstarter allows creators to take risks and attempt to create something new is a feature, not a bug.

      OurΒ Frequently Asked Questions,Β GuidelinesΒ andΒ Jumpstarter Crowdfunding videoΒ are great for understanding how to use our crowdfunding portal.

    • Jumpstarter

      Thanks Fagmie,

      We started Jumpstarter as a new way for creators and audiences to work together to make things. The traditional funding systems are risk-averse and profit-focused, and tons of great ideas never get a chance. We believe Jumpstarter could open the door to a much wider variety of ideas and allow everyone to decide what they wanted to see exist in the world.

      Jumpstarter is full of ambitious, innovative, and imaginative ideas. Many of the projects you see on Jumpstarter are in earlier stages of development and are looking for a community to bring them to life. The fact that Jumpstarter allows creators to take risks and attempt to create something new is a feature, not a bug.

      Our Frequently Asked Questions, Guidelines and Jumpstarter Crowdfunding video are great for understanding how to use our crowdfunding portal.

Leave a Reply