If you’re a business owner, if you haven’t already, no doubt you’ve thought about taking your business public. But it isn’t so much as simple as asking a bunch of faceless and nameless investors to give you money. There are some things to be aware of before you take that step. And that’s where we come in. We’re covering the question of ‘what are shares?’ and what are the benefits of going public, and everything else you need to know before you make that important leap forward. Read on to find out all you need to know before you take your company public.
What does “going public” mean?
To put it simply, for a company to go public means that a private company becomes a publicly traded and owned company. What it looks like from a business owner’s perspective is the shift from asking the banks for business loans and more asking investors to buy shares in the company. It means your company’s Initial Public Offerings, or IPO, are open to be publicly traded and owned.
The process of your company “going public” starts with a call to an investment bank for some decisions to be made. These decisions involved the number and price of the shares to be issues, for example. Investment banks will then become owners of the shares, which means they have the legal responsibility of them, and they take on the task of underwriting. Underwriting is the responsibility of selling the shares to the public for a profit for the original owners of the company.
What are shares?
In order for your publicly owned business to keep operating, it needs money. So where does that money come from? Well, it comes from shares. Your company will be split into shares which investors can buy. Investors can buy shares in your company for a set price, which will allow them to support you and help grow the company but also have a say in company decisions. The more shares you have, the more sway you have over decisions.
What are the advantages and disadvantages?
Like everything else, there are a lot of advantages and disadvantages to going public with your company. The main advantage tends to wipe out any worries of business owners: money. Your business will be strengthened by the backing of many investors instead of relying on one source of income. Ownership will be diversified, and your business’ prestige will increase.
However, it’s important to remember and be aware of the disadvantages to going public so that you can ride out the problems that might arise. For example, there is pressure that comes with more investors. They buy shares on the back of short term promises which you will then have to deliver on. Plus, the day to day costs will naturally increase, and your company will see more restrictions when it comes to management and trading as they move from a small or medium business into a larger business or even an international business that has a lot more regulations to think about.
The biggest disadvantage, however, is that you, as the original business owner, will lose a lot of control over your business. As mentioned, buying shares means buying control. If you want to keep control of your company, you will have to make sure that you have a majority of the shares in the company.
What is required to go public?
There are a few requirements that businesses need to meet before an entrepreneur can even think about listing with an investment bank to go public.
For one thing, it’s important that your business is making consistent and regular revenue. Missing earnings doesn’t look good to a public market so it’s important that you’re in a place where you can predict your next quarter.
You will also need a cash fund to bankroll the Initial Public Offerings process. As the saying goes, it takes money to make money, and going public is no different. There are a lot of expenses that need to be covered, and you can’t rely on the funds from going public to cover them.
Crucially, there is a need for room for growth in the company. You will need to convince investors that this company isn’t stuck and stopping where it is. Your company is not at the peak, it’s got more to go. Otherwise, what are you investors buying?
And of course, you should have a strong management team that can ride the waves of going public with control.
Conclusion
Taking the company public can seem like a dream. Going public is the mark that your business has made it. It no longer needs to scrape by in self-sufficiency, nor do you, if you don’t want to, need to worry about it anymore. Diversifying owners means diluting control, which can look like a comfortable semi-retirement to a lot of people. If your business is successful and you successfully take it public, you might even be set for life.
But it’s true that there are risks to everything, so if you’re aiming to take your business public, you should get expert advice to make sure that you are doing it right.
