When is The Right Time for a Company to Go Public?

There will often come a point in young business' existence that its principals begin to think about taking their company public. Often they are considering doing so as a way to gain some extra capital or in some cases simply some (perceived) extra visibility and or credibility. But the act of 'going public' is far more complicated than many people imagine.

When is the Right Time to Go Public?

There is never going to be a definitive answer to this question because every company, and the people who run it, is unique. In purely financial terms you may want to follow the standard expert advice that the company should be able to demonstrate at least an annual growth potential of 20% or greater. From a more personal point of view the company's principals have to decide if they are ready to give up sole control of their vision and begin answering to shareholders who may not be accepting of their ideas and innovations.

The Pros and Cons of Going Public

Like anything else in life, going public definitely has its pros and cons. On the plus side your company would stand to gain all of the following:

  • Access to increased capital so that the business can be taken to 'the next level'.
  • As public companies are usually valued higher than private ones the businesses perceived value is likely to increase.
  • Attracting top notch talent is often easier if you can offer such employees the added 'prestige' of working for a publicly traded company instead of a private one. And the ability to offer stock options will appeal to these people as well.

There are downsides though. These include:

  • Launching an IPO is an expensive business. The fees involved alone can easily reach into the six figure range, a cost that is often higher than the company can really bear.
  • Launching an IPO is also hugely time consuming. Often the actual growth of a company will stall as they are preparing for an IPO as the time that is available to concentrate on innovation is seriously diminished.
  • Your company will no longer be your own. Most people begin their own businesses in the first place out of a desire to work for themselves rather than for someone else. Once a company goes public it is controlled by the Board and by the shareholders. This means that once more, the company's founders are 'working for someone else.'

How the Process Works

So, having weighed up the pros and cons, and had a good long look at your balance sheets you have decided that going public is the direction in which you want to take your company public.

So what now? If a business is to go public it must be done via an IPO, an initial public offering. This means that equity in the company is sold off by an investment banking firm in the form of individual shares that are then made available for trade on one of the world's stock markets.

Finding just the right investment banking firm is one of those time consuming tasks previously mentioned. Size and general reputation alone are not the only things that should be taken in consideration when choosing such a firm. The more an investment bank's staff knows about your particular industry and niche the more likely it is that the IPO will be successful, so taking the time to seek such a firm out will be important.


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