Many companies will consider going public as a next step in their development. While going public offer number of benefits to a business it can be tricky if you haven’t carefully weighted advantages and disadvantages before you started process of going public. Going public is probably the most crucial decision for a company because it will not only affect your financing but also other aspects of your business. Companies that want to go public mostly engage in initial public offering (IPO) process but there are other alternatives for company to go public and trade their share on exchange e.g. reverse takeover. Going public offers many benefits to the company but there are also some drawbacks so company’s management has to take into consideration many factor before making decision to go public.
Pros of going public:
There are many reasons why companies go public ant their reasons vary just like the benefits and challenges they face.Going public, especially trough an IPO bring certain amount of prestige for a company and it often creates buzz of excitement. In general it will improve perception of your company in public as a legitimate business and increase its profile.
Biggest advantage is financial. It is a great way to obtain large amount of capital and to do it fast. Company will be able to raise money in cost-effective way that doesn’t require borrowing debt. Raised capital can be used to fund growth and expansion of the business, to acquire new businesses, for investment or repaying existing debt.
If your company is public that means that it has listed stock on some of the exchanges and because stock are traded they behave as a currency. In that way you can use it to acquire other companies or your competitors.
Being a public company means that your business will have more visibility and public awareness will be on a higher level than when your business was in a private sector. Listing on a stock exchange often creates a lot of hype that leads to heighten awareness of your products and services among the business community and customers. It is especially beneficial because it will be easier to to business if your company is well known.
Another benefit regarding finances is that company’s financial status will be improved. Influx of cash raised trough IPO is going to improve balance sheet leverage and debt equity ratio. That means that securing financing will be easier in the future should it be needed.
Securities and exchange commission (SEC) demands from public companies that certain requirements are met like quarterly and annual reviews, legal reporting requirements and audited financial statements. When information about your company is filed with SEC it is available for all to see and it makes your business transparent and trustworthy.
Trading your stock on a market leads to a greater liquidity for management, employees and existing investors meaning they can sell their shares if needed. Stock option can also help company to attract top talents.
Cons of going public:
On the other side IPO process is lengthy and time consuming and expensive.
Companies listed on stock exchange will have to spend more money in order to comply with all the regulations. Besides quarterly and annual report you will have to disclose material items that arise during the year.
Senior management of the company will spend more time preparing the offering instead concentrating on the business.
It is true that going public brings greater liquidity for the company founders but you will probably have to wait some time to sell some of your shares. Selling your shares to quickly as an owner can send wrong massage to investors.
Taking your company public means that your ownership will be diluted to some extent and it is possible that you will have to consult board of directors that protect interest of shareholders when you make important decisions.
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