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Your business is growing, but not as quickly as it could because you need capital to fuel expansion - to move into new markets, hire more staff, increase service and product offerings and grow more profitable with ever-expanding margins.
Instead of borrowing expansion capital, maybe it's time to consider going public - selling ownership shares of your business to the public.
The best reason to create an initial public offering, or IPO, is to create a diversified source of inexpensive capital that helps your business expand. At the same time, structuring an IPO creates increased visibility and enhances the reputation and image of your business. If you're an owner of the business, going public creates a public market where you can buy and sell shares in effect "cashing out" some of your ownership stake in the successful business you helped create.
But going public isn't as easy as simply offering stock to outside investors. Your business needs a solid track record of profitability, increasing revenues and reasonable margins in a healthy, growing industry or market sector. Investors want to see a strong management team, a vibrant corporate culture, a sound business infrastructure and growth potential. Lots of growth potential!
In other words, before going public, your business needs to prove its value by performing well over time. Otherwise, why would investors buy stock - an ownership position - in your company?
Other key factors include meeting guidelines for trading on a major exchange like the NYSE or NASDAQ and determining with certainty that going public generates enough investor interest for sufficient shares to be sold. After all, that's the whole point of taking a company public.
Going public is also expensive over the short and long term. A public company is subject to higher audit and legal fees and higher expenses due to increased reporting and disclosure requirements. The cost of compliance with securities exchange regulations can run into the hundreds of thousands of dollars.
Can You Go Public?
Ask yourself these questions:
Advantages of Going Public
The advantages of public ownership should be weighed carefully against the downside of giving up complete control of day-to-day operations. It's critical that you and other owners understand the pros and cons of this crucial business step.
The advantages to preparing an IPO include:
Disadvantages of Going Public
There are many disadvantages to an IPO that should be discussed with financial and legal professionals.
The downside to going public includes:
When you go public, shareholders must be kept informed about operations, finances, management decisions - in essence, your company becomes an open book to investors. As a result, you forfeit autonomy and some flexibility in running the business.
Steps to Taking A Company Public
Do the advantages of going public outweigh the disadvantages? If so, here's an overview of the process.
The initial share price changes frequently up until shares are released for sale to investors. The share price creates a market capitalization for a company. The number of shares outstanding times the share price equals the company's market cap. For example, one million shares at a $5 share price creates a market capitalization of $5 million.
So, should you take the company public? Weigh the advantages and disadvantages, and determine whether an offering of stock is likely to be successful. Going public is a great way to generate additional capital, but it can be expensive and time-consuming.
Explore all of your capital-raising options before deciding to let the public into your business life.