Like a novel, a business has a beginning, middle, and end. I’ve worked with over 300 entrepreneurs, and very few actually have a plan for the end of their business. Will you get acquired, franchise, go public, or continue to operate in perpetuity? Whatever your goal, you should always start and operate your business with the end in mind. In this blogpost, I will discuss the pros and cons of one exit strategy that you probably hear most often: Going public or IPO, which stands for "Initial Public Offering". It up to you to decide whether the pros outweigh the cons when it comes to your business's goals.
Going public means that your company is selling securities (like stocks) for the first time under the rules and regulations of the Securities Act. An IPO (initial public offering) is a primary offering when new shares are sold to raise additional cash for the company. Now that you know what an IPO is, let's look at the pros/cons.
Advantages include:
Access to additional capital to grow business
Asset boost on balance-sheet
Reliability to investors due to public disclosure of financial statements
Disadvantages include:
Your sales, profits, and executive compensation details become
public data
Increased litigation exposure
Heightened corporate governance and quarterly financial reporting
Cost- IPOs are expensive. They include the cost of underwriters, legal, tax, and accounting professions, filing fees, etc.
IPO is a great exit strategy, but before you fully commit make sure to do your research. Google is a treasure, but so are your legal and financial experts and other founders who have experience in IPO. Don't be afraid to ask for their input.
*This article is for informational use only.
For legal advise and services, contact GK Law Co.*