Whether to go public is a big decision for many small businesses when they reach a certain point of success. An initial public offering can offer an infusion of capital and the ability to quickly expand, but it is not right for every company. There are advantages and disadvantages to going public which should be considered before taking the plunge.
Advantages include the potential to raise capital and the ability to increase the liquidity of a company's stock. When the stock is then easier to sell, the proceeds may be used to acquire other businesses for quick expansion, and it can also be used as consideration for acquisitions as well. An IPO can increase public awareness and signal a business's success, potentially attracting a larger customer base as well as key employees.
Disadvantages of going public include the significant expense in terms of both time involved and money spent. There will be stringent requirements and additional duties imposed by the Securities and Exchange Commission on the business. When public shareholders become involved, the flexibility to run the company as owners see fit decrease substantially as many actions will require shareholder approval. The process of going public involves filing a prospectus describing the business's operations, risks, finances and management strategies. Audited financial statements are required. Additional information will also need to be supplied to the SEC, including copies of contracts. The registration statement is filed and the SEC will begin its review that may take months or even years to complete.
The process is much more involved than the overview provided here. Going public is a major business decision. Businesses should already have significant annual revenues prior to embarking upon an IPO. When part of the business's strategy involves wanting to eventually go public, the owners may want to consult with a business and commercial law attorney about the advisability of doing so.
Source: U.S. Securities and Exchange Commission , "Small Business and the SEC", October 10, 2013