Going public is a great way for businesses to raise capital in a short amount of time. Naturally, there are a number of things to consider before going public to ensure the decision suits the needs and scope of the company. Generally, the decision is a wise one; even if high-end goals are not met, the company still stands to benefit in a number of ways. Likewise, even if the company reaches their goals, there are some disadvantages to filing for an IPO as addressed below.
Advantage: Public Awareness
Launching an IPO not only draws the attention of investors, it also puts the company in the eyes of the public. In a way, going public is a way that businesses can earn free advertisement. Depending on their performance during the IPO, media coverage can document their success and present the company in a positive light. Regardless of the image presented by the media, potential customers will be made more aware of the company, what it has to offer, and the potential for its growth.
Disadvantage: Regulatory Requirements
While private companies are generally permitted to operate as they see fit, public companies are expected to adhere to stricter regulations. This shift can impact business decisions and leadership organization. Each year, public companies must file financial statements which are time-consuming and costly. In order to file these statements, work must be completed throughout the year in order to conduct an official audit and ensure adherence to the regulations in place.
Advantage: Exit Opportunity
When companies go public, they often raise millions of dollars in capital. For private investors and shareholders, an IPO tends to be an ideal exit strategy. Though they will not immediately receive their liquidized share upon selling their stock, investors are more inclined to sell when external investors are likely to buy at a higher price. After years of holding onto stocks and being unable to sell or liquify their assets, long-time shareholders see value in an IPO because of this opportunity to earn a profit.
Disadvantage: Market Pressure
Though a private company may feel inclined to make decisions based on what is best for the company itself, going public tends to change this attitude out of necessity. Leadership decisions face scrutiny from investors, analysts, and financial professionals around the world. Company founders often lean more toward long-term goals, and while this is beneficial for the company, many investors are keen on short-term achievements instead. Appealing to investors is an essential aspect of going public, so business leaders must adapt to this pressure.
Going public can provide a number of benefits, but there are also risks and challenges to be considered. Whether the decision to go public is right for you and your company is dependent on your goals, needs, and willingness to abide by new expectations and rules.