Business Article - Thinking about floating your business
Floating your business means selling dividing ownership of the business into stock and selling parts of your company's stock on one or several stock markets. There are lots of reasons both for and against floating a company. When a company goes public, many of the ways in which it does business may have to be changed. Public companies are required to file various regular statements and to keep scrupulous accounting. The amount of paperwork that has to be done at a publicly traded company is far greater than that of a private company, and the management of the company has more responsibilities to uphold. It also takes a great deal of time and preparation just to become listed, and it costs a good deal as well. While these are some of the disadvantages of floating your company on the stock market, the advantages are that your company gains a much higher profile, more attention within the industry and often a strong influx of cash which makes it possible for the company to move on to the next level. People in a management position within the company who own large amounts of stock can also become rich by selling during the elevated period of excitement that tends to follow an IPO (initial public offering). Many people plan to do just that - build a company to the point that it is ready to undergo a highly publicized IPO, then sell their stake so that they can cash out and possibly retire. Others see the process of becoming a publicly traded company as simply another step in their careers and a chance to bring in new money and new expertise.
What kinds of businesses are best suited for floating on the stock market? Small businesses are generally private, but as a business becomes larger it may find that the best way for it to grow at the highest rate possible is to have a stock offering. Investors are interested in buying companies that have demonstrated their continued earning power with secure earning streams. The business model that your company uses should be one that is expected to generate strong continued growth in the following months and years. Often the best time to begin selling stock is right on the heels of a major product breakthrough or industry triumph - a time when your company is turning the corner and has the potential to build on a number of strong past successes. The more established that your company is already, the better its chances are of having a strong showing if it goes public now, and of course it helps if your company is receiving strong attention in the media and experiencing good publicity. The better established your company is, the less of a risk it is seen as to investors.
When a business sells stock there is an influx of cash, which makes it possible for the company to develop new products, expand its staff and locations, and make other enhancements to its existing business strategies which can in turn continue to increase profits. Ideally, the Initial Public Offering is just the first step in a series of rapid developments to improve the profitability of the company. Positive results from the developments enabled by the first round of stock sales can help to drive the overall stock price higher and bring even more wealth to the company which can be used to further grow the corporation's assets and processes.
To make sure that the Initial Public Offering has the desired effect, you should ask yourself a number of questions about the value of your company. Does your company have a strong proven track record with revenue streams that are reliable? Is the industry in which you work a sector which investors currently find attractive? Do you have a business plan that is suitable to the needs of your market over the course of the following months and years? Is the staff of your company capable of managing it as it makes the transition from private to public?
When you finally decide to go public, your company will be independently valued. A process of auditing will take place during which you must ensure that your business plan is well composed and coherent for presentation and your financials are scrupulously written out. Companies that have taken the time in advance to bring their internal accounting processes up to the same standards as a public company will find the transition relatively easy, while others may have to make significant additions to their staff to be able to take care of the new paperwork needs consistently. After the stock has been valued and all of the initial paperwork is in order the company will be listed on a stock exchange and the level of excitement seen in trading will determine whether its price goes up or down.
The obvious advantages of having a company listed on a stock exchange are the money which comes into the company, the increase in company morale that usually comes around the time of an IPO, the ability to repay many of the investors that had faith in your company and funded you in anticipation of this time, and of course the higher public profile that your business will enjoy within its industry. Companies that are publicly traded are more prestigious and are more easily able to make partnership or cooperative arrangements with other companies in their field. They also have more options for bargaining with other companies due to their ability to buy and sell stock. A company that is floated on the stock market is more likely to be able to easily purchase controlling interests in other companies in its field and gain an even higher profile.
Some of the down sides to floating your company involve the loss of control. Once your company is on the stock market, any news that comes out about the company will have an effect on its stock price. Bad news can cause the price of your company's stock to become depressed, which can have a spiraling effect in some cases and make it even harder to recover from mistakes. Controlling the public perception of the company, then, becomes one of the top priorities of those in charge of maintaining the value of a publicly traded corporation. Control is also lost as the shareholders of the company must be given a stake in running the company. Meetings with shareholders must be held on a regular basis to demonstrate how management is achieving its goal and what future projections can be made for corporate growth. Groups of shareholders can band together to vote on issues that impact the direction of the company, and their goals may be different from yours. If you give up the majority stake in the company to someone else, they will have the final say over the day to day affairs.
It also takes a great deal of time to comply with the paperwork filing requirements of a public corporation. If the current staff is not up to the task more staff must be added, and even then the struggle to keep up with the new demands of running a public corporation can be a drain on the resources of management, which can distract from the work of running the business as it has been run in the past. The employees of your company may also lose morale over the long run, as the entire process of managing the company becomes increasingly impersonal and changes are made which are seen to adversely affect them. There may also be jealousy between employees who are forced to continue working at the same pay without the benefits of owning stock, and employees who were able to secure stock options during the IPO and profit from the growth of the company. In addition to these down sides, the process of filing is itself quite expensive.
In the event that you have considered the ups and downs of floating your company and now want to go ahead with the process, the first thing to do is to hire advisors. A corporate advisor will make sure that your company's legal structure is the right one for becoming a public corporation, see to it that your financial filings are in order, and then make the application to become a publicly traded company on behalf of your corporation. You will also need to hire a corporate lawyer, an account or entire accounting staff capable of handling your finances in accordance with your stock market's rules, and a stockbroker who will represent your company to other stockbrokers and develop your reputation in the market. Your business will then be valued, and the value will be determined as a result of the earning it has had in the past and the potential earnings that your company has for the future. It is good to set a conservative beginning price, as you want to be able to quickly meet the expected value of your stock and enjoy a rise in price soon after your IPO.
From beginning to IPO the process can take from three months to a full year or longer. Make sure that you have planned well in advance for the benefits and drawbacks, and your IPO will go as smoothly as possible!