Hundreds of companies go public every year in the United States. Could your business be one of them? Right now, your private company likely relies on a small number of private investors and shareholders for funding. However, after going public, your company will be able to raise much more capital. Most companies go public through an IPO, or initial public offering, which involves selling shares to the public for the first time.
Taking your business public is a lengthy and complex process, and it’s not something you should attempt on your own. It’s best to team with a financial planning firm with special expertise in the IPO process to ensure everything goes smoothly. To help you understand the nuts and bolts, we explore the fundamentals of the IPO process so you can get started.
Is Going Public the Right Move for You?
Before doing anything else, make sure going public makes sense for your company. Mighty Recruiter explains that businesses must meet certain requirements before beginning the IPO process. For example, you will need predictable and consistent revenue, proven growth potential, and a low debt-to-equity ratio.
Publicly traded companies are subject to more restrictions and oversight than private companies, and embarking on this transition is a major commitment. Review the disadvantages of going public so you’re well-prepared. Going public with an IPO can be an expensive process, so you must have some extra funds available. Also, keep in mind that going public means giving up some power over your business since you will have to answer to your shareholders.
Not surprisingly, making this decision can be difficult. If you’re new to all of this, make sure you seek advice from a professional. A great financial consultant can help you decide whether you should go public with your company.
How the IPO Process Works
An IPO is the most popular way for companies to go public. During the IPO process, TheStreet explains, investment banks buy shares from the company and sell them to the public on the secondary market for a commission. The investment banks take on the risk that they will be able to sell the stock and make a profit. In exchange, the banks will help set the price for the stock, market it to investors, and coordinate the sale of shares.
Your First Steps
When you decide to go public, your first step is to hire an underwriter. Often, the underwriter is an investment bank. The underwriter will ensure that your business meets all the regulatory requirements for an IPO and then recommends a price for your stock. The underwriter typically guarantees to sell a certain amount of stock or buy the surplus itself.
You will also need to file form S-1 to register your IPO with the Securities and Exchange Commission (SEC). Form S-1 includes important information about the business, its competitors, how the company intends to use the capital it raises, and more. Potential investors use this information to decide whether or not to purchase shares.
Obviously, there’s a lot of planning that goes into going public. You’ll have people assisting and participating every step of the way, but it still doesn’t hurt to plot out your timeline. Writing it down is one thing, but a monthly calendar template, like those offered by Miro, can help you turn your timeline into a visual roadmap that outlines important dates, tasks, and deadlines. This ensures you don’t miss a beat as you prepare for this exciting new step.
Once your company goes public, management will become a lot more complicated. You will need to regularly file a number of documents to the SEC to ensure compliance with regulations and requirements. Again, this is where it pays to work with a professional.
It’s also important to reassess your own financial goals after taking your company public since your new wealth can create new tax considerations and other complicated financial issues. Work with a finance professional who can help you navigate wealth management and estate planning after the IPO process.
An IPO is a critical step for any startup. While it’s a great way to drum up a lot of capital very quickly, it’s also risky, time-consuming, and expensive. Make sure your business is ready for this process before embarking on this transition.
For regular insight into startups as well as tips on leveling up yours, be sure to follow New Startups today!