Operating your business in a profitable way can prove to be challenging sometimes. The economy is constantly in flux and highly competitive. If you’re looking for ways to expand your business and increase your profits, going public by issuing an initial public offering (IPO) is one investment you can make. This involves selling shares of your company’s stock to the public. There are many pros and cons of going public, so make sure you bear in mind the information below before you make your decision.
The Benefits of Going Public
Every business is looking for new ways to become more successful. Whether your business is struggling financially or you’re simply looking to take the next step towards success, it’s important to learn about your investment options. While there are many opportunities to take, selling shares of your stock to the public is one common investment to pursue. Take some time to learn the benefits associated with this type of investment.
- Potential large flow of new capital: When selling your stocks is successful, you can obtain capital you don’t have to repay.
- Grow and expand your business: If you can obtain capital, you can invest it in growth, research, product development, supplying funds, acquisitions, and expansion into other markets.
- Effectively recruit and retain employees: Stock options work as great incentives for potential or current employees. They can also function as a form of employee compensation.
- Increased visibility: Going public may give your company a more widespread and prestigious reputation.
- Freely marketable shares: Shareholders reap the benefits of having shares they can market and use as collateral for their loans.
- Shares are higher priced: Public shares generally have higher prices than private shares
- Well-versed management: The management personnel of a company that goes public earns more employability and experience by serving as executives in a public company.
- Better compensation: Generally speaking, management of public companies is compensated more than private companies.
The Drawbacks of Going Public
As you can see above, there are many potential upsides to selling your shares to the public. But as with any investment, issuing a public offering comes with its unique set of potential risks. Making a sound financial investment should be done only when you consider every side. Here are some potential downsides to going public:
- Loss of control: Going public causes your management personnel to lose a certain amount of freedom regarding business decisions. You will have to answer to outside parties, including a board of directors, institutional investors, and public shareholders.
- Upfront costs and fees: An initial public offering requires you to pay certain costs, such as legal fees, underwriter’s expenses, registration fees, and printing costs.
- Revealing of information: Your company will have to regularly share sensitive information as required by the SEC. This information includes executive salaries and business strategies.
- Continuing costs: You will periodically pay for reports and statements for regulatory agencies and shareholders.
- Pressure of shareholders: Management tends to be judged by shareholders regarding stock prices, dividends, and profits. This judgment often causes public companies to pursue short-term strategies that might undermine long-term goals.
- Regular audits: A publicly held company is required to undergo financial audits on a consistent basis.
Before making a concrete decision, it’s crucial you analyze your options. Hardly any good business decisions are made on a whim. The responsibility of a professional business owner is to contemplate the various facets of a potential investment and make a well-informed decision. Going public may be the thing that sets your company up for unprecedented success, but it may also be expensive and restrictive. Take note of your current financial situation and study your options carefully. Once you’ve done this, you can decide which course of action makes sense for the well-being of your company.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.