Crowdfunding utilizes the power of the Internet to help business owners raise money by appealing directly to large numbers of small investors. Historically, investors "donated" money toward a project in exchange for a "reward," which could be a good or service but not a share of a company. Equity-based crowdfunding, a new way for businesses to raise capital, changes the game completely — with many positive implications for accountants.
The 2012 Jumpstart Our Business Startups (JOBS) Act allows new or expanding businesses to raise up to $1 million annually by selling securities through online crowdfunding efforts. Securities regulations haven't seen a change this big since Sarbanes–Oxley was passed in 2002. Equity-based crowdfunding is an alternative to traditional methods of raising capital, and it's good news for accountants. Businesses seeking crowdfunded capital must comply with certain regulations and guidelines and will need an accountant's help to do so.
The U.S. Securities and Exchange Commission mandates that a company's principle executive officer certify the company's financial statements when raising up to $100,000 by selling securities via crowdfunding. These companies must also provide an income tax return for the most recent year. Further, companies seeking crowdfunded capital between $100,000 and $500,000 must have their financial statements reviewed by a Certified Public Accountant. Companies seeking crowdfunded capital over $500,000 must have their documents audited by a CPA.
Businesses will need to have all their financial statements in order, including an income statement, a balance sheet and a cash flow statement. Startups built on equity-based crowdfunding will also be required to file certain paperwork with the SEC, including a business plan, intended use of proceeds, targeted offering amounts, the offering price, and how that price was determined. Most startups are not prepared to handle this complicated paperwork on their own and will need a CPA's help to accomplish the task.
Additional services that accounting firms can offer in order to capitalize on the equity-based crowdfunding movement include education and corporate advisory, forecasting and analysis, budget preparation and review, cash flow management, controller services and wealth management.
Another benefit to the accounting industry is that every year, companies founded through equity-based crowdfunding will be required to provide their investors with reports of the results of operations and supply annual financial statements. Again, most companies seeking crowdfunded capital will require a CPA's help.
Ultimately, crowdfunded capital is going to change the way businesses are started, with a major impact on accountants. CPAs will be needed to provide expert guidance and assurance throughout the process. Equity-based crowdfunding requires companies to do their due diligence before making their offer public. There are a lot of pieces to juggle, and the assistance of a CPA is absolutely necessary. As equity-based crowdfunding takes off, accountants are poised to reap the benefit.
(Photo courtesy of pixomar / freedigitalphotos.net)