The allure of taking a company public is one that many business owners cannot overlook. The access to instant cash flow through an IPO could change your business forever, but going public can be one of the most difficult decisions in business to make. You must first understand the price your company will pay to go public before you dream of the potential benefits your company will gain.
#1: The Costs Of An IPO
People, in general, dream of the capital that would come from an IPO. They dream of the millions or even billions of dollars they would raise to fund their company. The company benefits from this cash, but the cash from an IPO costs money in its own right. The fees involved in becoming a public company could easily reach over a million dollars. A business that does not have a million dollars to spend on an IPO may have to wait until it is more stable financially to do so.
#2: The Paperwork
The paperwork involved in an IPO is time-consuming. You have everyone at your business working hard during the day to run the business you have created, but the paperwork for an IPO is a full-time job until the IPO hits the market. You must have the proper people dedicated to the process, and there is no guarantee that it will be successful. Less than a thousand companies a year are able to get their IPO to the market.
#3: The Benefits Of Succeeding
A successful IPO will bring in mountains of cash, and you will likely have more money than you are able to manage. You will need to re-evaluate how your business is run, while having a specific plan for all the money that is raised. A traditional IPO could potentially finance several projects that have been put off, resulting in the business going a completely different direction it had been taking. It will also result in greater exposure, building credibility beyond a simple BBB listing and potentially giving you respect as an investment option.
People who have not heard of your business will instantly give you the respect you deserve when the IPO is successful. Investors start taking your company seriously, making it easier to raise more funds privately. Your business will have gained from the IPO, but the respect that is gained from investors by going public will continue long after going public.
#5: Better Talent
Companies that are awash with cash have an easier time hiring the finest employees. You can offer better salaries to attract highly qualified employees, which in turn increases the internal value of the company. Employees will be less enticed to leave because you have more to offer them. The cash that came in because of the IPO will have solidified your workforce and your bank account at the same time.
#6: Major Concerns
A company that succeeds with their IPO loses some control of the business on the management level. Your investors will expect to be updated on how your business is managed, and certain investors may expect to be a part of the daily operations. Their money will have paid for many improvements to the business, and you’ll be required by law to keep your investors informed of the business decisions and results. You lose some control of the business the moment shareholders are involved in the business decisions.
#7: Your Board Of Directors Will Change
The board of directors is often comprised of people who have helped you grow your business over the years. You worked with these people to create the business you can take public, but after the IPO, you may not be able to keep all your people on the board. Investors will expect to have places on the board of directors, and the direction of your business could change. When it comes to going public, you must immediately accept that you are not the only person whose money is on the line.
#8: The Overall Result
The overall result of an IPO is an infusion of cash that comes with investor input. You must balance the decisions of the expenses of company money you receive from the IPO with the people that supplied that money. Many shareholders are regular people who own a very small piece of your company, but other shareholders are powerful executives who wish to have a say in what you do in the daily business operations. You will give up a lot of control of your business, but you will gain the money that will stabilize your business in the present and in the future.