Difficulties for Small Businesses to Go IPO

Making your company public is a huge turning point for the future of your company. It can make your company profitable enough for it to offset any liabilities and even fund an expansion. Selling your stock to the public in an Initial Public Offering commonly referred to as an IPO, can bring a lot of publicity to your company which translates to more investors. However, for small business, selling their stock on an IPO may be more of disadvantageous than advantageous. Here are some of the drawbacks a small company may face in an IPO.

Costs

An IPO can be considered as a means to make more money for a company and just like any other investment a company makes, large sums of money are involved to bring about a profit. An IPO is very expensive reaching to about a million dollars at times and if anything derails the process such as bad publicity, all that money is lost. Legal, accounting and printing are also accounted for when making an initial public offering which make it a bit steep. This may be a bit too high for a small business to afford, hence, most of them avoid it and take out loans and credit cards to finance their operations.

Regulation

Once an initial public offering is made, business operations have to change. According to government policy and the law of the land, a business has to operate in a certain way for it to remain public. For example, a business may be required to have a certain number of directors to run the operations of the company. These requirements may become cumbersome for small businesses to handle since they lack the staff or executives who know the rules and how to play by them. This makes them reluctant to make an IPO.

Management Issues

Going public is making your company stock available to hundreds or thousands of shareholders who require results as soon as possible or they may start selling off stock which leads to a lower share price. As a private company, you and your investors are answerable to yourselves which makes it easier for you to run your company. As for a public company, you are legally liable to provide answers as to why your company is not performing as expected which may be a bit too much for a small business.

Transparency

Being a private company, saves you from having to provide details such as financial details or the happenings of the boardroom meetings. However, once you go public. You have to disclose details such as how much the executives earn, transaction details and even violations you may have committed in the past. Annual meetings will become a norm where you will be required to provide answers for the different questions, investors will field to you. Thus, you will have to be more transparent than you would have wanted to be.

After reading this, I am assuming you feel a bit discouraged to make an initial public offering for your company. However, this is not the case. As stated above, an IPO is very profitable but only if they are planned for and executed to the liking of you and your investors. You must be ready for the consequences that may arise. However, how successful can a business be without a bit of risk?

Otherwise, you can have a look at an alternative which is really time-saving and economical for businesses, especially SMBs. Details at https://medium.com/livetrade-exchange-brokerage/an-alternative-for-ipo-5c1dc2c0615b