Crowdfunding is an increasingly popular method of funding small businesses. Crowdfunding asks the general public or small groups of investors to invest in a company, generally through an online platform. The platform contains information about the small business — its goals, plans and financial needs —  either to develop a startup or expand an existing business.

Many small business owners think of crowdfunding as a convenient and relatively quick way to get funding. That’s why so many diverse kinds of businesses use crowdfunding. Do you want to form a business to make a documentary film? Open a local farm-to-table restaurant? Develop a nonprofit for an underserved condition? Invest in local real estate properties? Make a music video? All these types of businesses use crowdfunding.

The popularity of crowdfunding has also been spurred by the fact that angel investors — one or several investors willing to step in and fund a promising startup — are not easy to find. Venture capital (VC) firms, the next stage, will generally only fund at a later stage, and their financial requirements are very rigorous. VC funding is not easy to come by, either.

Most people start their small businesses using their personal savings or those of relatives. Asking many people to fund a bit of your business rather than convincing one or two or a VC firm may be a prudent decision.

But, of course, you have to make sure it’s prudent. Is crowdfunding right for your business? Ask yourself these questions before hitting the crowdfunding market.

1. What Are the Investors Looking For?

Crowdfunding comes in many shapes and sizes. Some crowdfunding campaigns are open to the public and rely on emotional appeals. Business owners trying to make a documentary, open a farm-to-table restaurant or make a music video, for example, might appeal to the community the documentary will be made about, local farmers’ market participants or fans of the musicians’ Facebook account. One thousand people pitching in $15 each, after all, raises $15,000.

In cases like this, crowdfunding investors need to realize some payoff from their investment, but it is not necessarily financial. Smart business owners, though, will pay in emotion. Thanking investors and keeping in touch with them about the progress of the goal they contributed toward will need to be part of your business plan going forward.

Other crowdsourcing participants may be looking for a financial return from the business they invested in.

This can happen in several ways. First, even if the pitch is primarily emotional, crowdfunding investors who contributed what they consider a significant amount in a business may, quite reasonably, be expecting a financial return, just as investors in any business do.

Second, some crowdfunding sites are set up not for the public, but for investors who are accredited as such. The reason for classifying these as crowdfunded is not so much that investment opportunities are open to anyone, but that investors can contribute smaller amounts than significant investors usually do — with the intention that all the money will be pooled. Amounts can vary from $1,000 to $5,000.

Third, some peer-to-peer crowdfunding sites have returned as much as 10 percent to their investors. These are quite far from the “fund us to finally have a video of our awesome music” or “contribute to our nonprofit” crowdfunding sites. Whether members of the public or active investors, people go to these sites looking for an investment opportunity, not to participate in a small business’ dream.

You will need to assess which model will benefit your business the most. Are you a local business with a strong crowd of supporters who believe your venture is worthwhile and will benefit the community? Are you more likely to attract investors looking for returns? Will your likely investors be a mix of both, or may they change over time? Investors in a successful restaurant or musician, after all, may wake up one morning wondering where their dividends are.

You need to plan for how your investors will be paid, either with dividends or with the psychic income of a coupon or other incentive. You will also need to plan for some kind of ongoing investor relations.

1. How Will You Describe Your Business on Crowdfunding Sites?

Once you’ve defined what your likely investors will be looking for, you need to develop your pitch — what the crowdfunding site will say about your business. Tell the public what your business is, why they should invest and what will happen once they do.

Crowdfunding is not that different from going to angel and VC investors in that respect. You need a transparent business plan for people who might want to invest in your company.

Think of it this way. If you went to a VC firm for funding, they would require a comprehensive and rigorous business plan. They would expect a description of your goals and objectives. They would ask for detailed income statements and balance sheets. Those financial statements would lead to funding only if they showed robust profits.

Most VCs require in-depth market research and an analysis of your market niche. What has made and is likely to continue making your business successful in its market? How is it different from other companies in the same market?

Then, VCs would want to see the legal and tax picture. Are you a sole proprietor? Consider your corporate status. Are you incorporated? Are you a limited liability corporation? Are you in a partnership? How many partners are there? Potential VC investors would want to see that information — or plans for it — because all these factors affect taxation, legal liability and even the number of investors you can have.

Now, for public posting on a crowdfunding site, you would not go into that much detail. You need to be sensible about revealing your finances to the world, as well as your plan and your market differentiation. But investors deserve to have a summary of all these things. Have you grown profits 15 percent over the last two years? A description of the business needs to be on the crowdfunding site, along with relevant, targeted information that lets them know the degree of your success and future plans.

1. What Are the Legal Implications?

Crowdfunding is a form of investment. Any form of investment in your business comes with legal implications. Crowdfunding may be especially complicated in the legal arena, simply because it is relatively new and the courts have not fully worked out many of the implications.

Consider the issue of transfers, as just one example. Investors who own stock in a public company can not only buy and sell the stock whenever they want, they can transfer it. If they want a gift for their grandson or want to transfer the ownership stake on their death, that can all be accomplished.

Some crowdfunding sites, such as Groundbreaker, state investors should think of their contribution as a chance to “buy and hold” only. The site refers to future secondary trading just as potential. But what happens when crowdfunding investors die, for example? What happens if they want to transfer their ownership?

The U.S. Small Business Administration recommends business owners consult an attorney with experience in the field before turning to the crowdfunding markets.

Crowdfunding is an increasingly popular method of raising investment funds for small businesses. It can jumpstart and help expand your business. But there is much to consider, as well. Be sure to answer these three questions thoroughly before you decide to enter the crowdfunding marketplace.