Going Public: Preparing for an IPO

Taking the leap from a privately-owned company to the public arena is a monumental decision that ambitious businesses make during a key stage of growth. Reaching the point where an IPO is even being considered is certainly an achievement that is cause for celebration. The process comes with plenty of trepidation, however, as going public is a complex and involved matter. So prior to committing to the bold step of becoming a public company, a number of factors should be considered.

Why Go Public?

Let’s start with the basics. Who do companies even go public in the first place? Well, there are plenty of benefits that influence the decision:

Provide current shareholders and early investors with the opportunity to secure a return on their investments
Access a wider selection of investors to infuse the company with fresh capital
Utilize your securities as a means of growth (M&A by way of shares instead of cash)
Promote your company with the increased publicity that an IPO naturally attracts
Entice top industry talent to join your company
Invest in your company's future through the acquisition of shares as opposed to cash
Enact the parameters of your company's value to track long-term growth

What Should Determine Going Public?

The IPO process is a long one, which is why companies interested in exploring the option often begin considerations years before filing any paperwork. Since going public is labor-intensive and potentially expensive, being confident in the decision to begin exploration is key to conserving valuable resources. Here are some things to consider before hiring an underwriter:

Purpose: Why are you considering an IPO? There are plenty of fantastic reasons for doing so, but if the reason is to simply raise additional funds, you might want to consider everything else that accompanies the decision.

Timing: The success or failure of an IPO can often come down to sheer timing, and it’s not particularly based on luck. Research similar companies that have gone public recently and the economy as a whole. Is now the perfect time for your company to make its debut?

Support: Simply going public is not enough to convince new investors that your company is worthy of attention and funding. Do you have a great story that investors want to be part of;

Scrutiny: With an IPO comes a tremendous amount of new analysis and intense inspections that companies are often not prepared for, and thus cannot withstand. Ensure that you have a rock-solid plan in place and that your information is ready to be released to the public.

Finances: If significantly more money is needed to pursue your business’ goals, going public can be a great way to secure the necessary funding. If your current goals can be achieved without those funds, however, you might consider holding off until needed.

Demand: Is there demand for not only your company’s products and/or services, but also the industry as a whole? IPOs that attract major attention tend to be ones that pose radical solutions to existing problems, so consider whether or not your company has the potential to really capture the public’s interest.

Pressure: An IPO gives early investors the perfect opportunity to see rewards for their loyalty. If your investors are clamoring for a public listing and not just you and close associates, then it could definitely be worth exploring.

Competition: Making an honest and accurate assessment of your competition is key. Will your company be the first of its kind to go public, or are all of your direct competitors already public? And are you looking to be in a position to acquire other companies?

What Do You Need To Prepare?

After making the decision to go public, months, if not years of preparations begin to ensure that your company is in tip-top shape. The transition from private to public company has plenty of pitfalls that can be avoided with the following considerations:

Establish an ironclad business plan complete with your company’s history, financial information, market analysis, and growth projections. This also includes doing your homework regarding your company’s history to smooth over any rough patches before public scrutiny.

Public companies are required to release quarterly and annual financial statements, press releases, and annual meetings. Make sure that these tasks are delegated and scheduled as early as possible.

Establish internal controls to organize financial policies and accounting measures to mitigate problems down the line.

Begin considering and possibly hiring professionals to assist with the process. These include:

Underwriter: Assembles financial documentation and attracts investors
Securities Lawyer: Provides assistance with navigating increasingly complex financial regulations
Accounting Firm: Conducts internal audits to prepare for the audits that will be required
Investor Relations: Ensures your company's public perception is positive from the start

Within the company, a qualified and experienced board is needed both for company growth and to assure investors that your company is built on a solid foundation. You’ll also need to select individuals for your company’s audit and compensation committees.

Are YOU Prepared?

Beyond preparing your company for the seismic shift that going public is, it’s important to consider the impacts that it will have on you – both personally and professionally. With shareholders, board members, and other professionals relying on your company’s performance, running a public company can be vastly more stressful than a private one. Plus, this increased accountability – but importantly, less control – means that the toll on personal stress can be immense.

As should be clear by now, going public is a decision that should not be taken lightly. Though if you have answers for the majority of the questions posed here, you might very well be in a solid position to reap the plentiful rewards of an IPO and establish your company’s position as a major player in your industry.