Faced with tighter borrowing requirements, more small to medium enterprises are considering all the options. One of these is “going public” with an initial public offering (IPO). Knowing the facts about IPOs can help you determine whether going public is the right move.

Before looking at the advantages and disadvantages of IPOs, you need to ask whether your company is ready. First, you have to be growing quickly enough to justify an IPO. Accelerating growth over several years is a prerequisite to be a contender in the market. You also will have a justifiable need for substantial funding and should consider the timing in the market by looking at how similar public companies are doing. On average, it takes one year to prepare the IPO, so you need to think about the performance of your industry when your offer is ready.

Advantages and Disadvantages

Many small and medium sized companies have stepped up to the next level with an IPO. An initial public offering can enable you to raise substantial amounts of equity capital without incurring interest and needing to repay debt. In addition, it creates an objective market valuation of your company, builds your image and legitimacy, and provides funds for future acquisitions. Against these benefits, you need to consider the loss of control, as well as the cost and time involved, in going public.

Alternatives

A direct IPO is one alternative to a conventional IPO. For example, businesses can sell shares online by filing a Small Corporate Offering Registration (SCOR). While there is minimal external review and oversight required under this process, backing up your case with audited financial statements will make it easier to sell your offering on the open market. A major disadvantage of the direct IPO is the time and effort required to sell the shares and the risk that you might not be able to sell them.

The advantages of an IPO may seem irresistible but they need to be balanced against the disadvantages.