Is your company ready to go public? - Butler Financial, LTD
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Is your company ready to go public?

Consider these factors before you decide to take the plunge.

It’s exciting to own a fast-growing business, but you may get to a point where you need an injection of capital to take it to the next level. This could be the time to consider taking your company public.

Why go public

While there are many reasons to take your company public, the most common motivation is to raise additional capital.

Owners and employees can sell public stock more easily than private stock, increasing the liquidity of their equity. A public company often can attract employees more readily because it can compensate workers with company stock and stock options.

Going public also increases publicity, brand awareness and prestige for a company. This alone may lead to additional expansion opportunities.

All this may sound well and good, but you should determine if going public aligns with your company’s long-term strategic objectives. For one, you should understand you may lose some flexibility to make operating decisions because you’ll have the stakeholders’ desires to bear in mind.

The initial offering is only the first step; you’ll want to ensure your company has the financial strength, market viability and operating competency to be a successful public company in the long term.

Three pathways

The most common way to go public is through an initial public offering (IPO). These are what we’re accustomed to hearing about in the news when a company takes the public plunge. An IPO raises capital by selling newly issued stock shares to investment banks. Then investment banks turn around and sell those shares to institutional investors.

While an IPO is the traditional pathway to going public, there’s also a special purpose acquisition company (SPAC) and a direct listing. A SPAC is a shell company using an IPO for the purpose of merging with or acquiring a yet-to-be-identified private operating company. The SPAC combines with the private company within two years and the resulting company becomes public. Funds are raised through the SPAC’s IPO proceeds and additional capital from private financing. This option tends to be more attractive for bigger companies looking to go public.

For a company to go public through direct listing, the organization allows existing shareholders to sell shares directly to the public. This option is historically used by very large, consumer-facing companies that have strong brand recognition and can generate enough market interest.

How to prepare

Before determining if your company should conduct an initial public offering, understand the process will take time and money. It can take several months or longer, and some of the timing may be out of your control. You’ll want to decide on the right time to go public, taking into account investor and market demands, the overall economic climate, and consumer interest in your products or services.

You should have capable leadership in place and experienced advisors to see you through the process. A suitable team will include auditors, attorneys, accountants and underwriters due to the increased financial reporting and auditing standards that apply to public companies.

Prepare your organization by getting governance and reporting systems in order. They must be reliable, accurate and timely to comply with SEC requirements. These rigorous obligations under the Exchange Act include annual and quarterly reports, current reports and requirements relating to communications with shareholders. Information about business operations, financial conditions and management within these disclosures is expected to be detailed.

Before taking the first step, it’s always a good idea to do some housekeeping. Revisit your personal financial plan and estate/life insurance documents to anticipate how the net after-tax results of any sales proceeds received or stock growth could affect your plans. There’s also the option to create a charitable giving plan using low basis shares whose value may increase exponentially after the IPO.

This year might be the year your company joins the ranks of publicly traded companies. Be prepared for what’s expected of your organization if you make the move and how you can continue to build a successful public company.

Sources: inddist.com; apnews.com; sec.gov

Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.

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