What would be the easiest way to reflect a equity crowdfunding round on here? I'm looking at Revenue Share 5-10% of revenue to 3x investment. Should that be listed under expense? debt? investment?
Crowdfunding is essentially of 4 kinds: Donation - Revenue - Loan - Equity
The manner it is reflected in your books is according to the nature of the funding received in return.
Will provide only quickfire explanations:
Donation will be classified as "Other Income" as it is earned, but in case you do not deliver on the promise of the campaign, it is not due back to the doner. Watch out for the terms of the campaign however.
Revenue:
If the nature of the campaign is that donors are acquiring a product or service in advance, this is classified as "deferred revenue". The portion of the product or service that is given to the client can then be classified as revenue (i.e. the transaction is concluded), whereas the uncompleted portion is still a liability on the books until completed.
Loan:
Classical loan accountancy treatment here. Maybe the campaign is such that loan repayments are made in kind, such that the loan is deemed as repaid upon service delivery.
Equity:
This is transaction based, where the cash received during the campaign in exchange for equity in the business. The terms of that equity need to be defined as either ordinary shareholders. or with certain preference rights.
