Going Public - Is it The Best Option For You?

Know what an IPO is? An initial public offering (IPO) is
basically a company's first sale of stock to the public,
which is why it's also called "going public." Usually - but
not always, an IPO involves the stock from a young and
not-too-well-known company. The most compelling reason to go
public is to raise cash for operating capital. But there are
strings attached…

After the demise of the dotcoms, the scandals of Enron,
WorldCom, Tyco, and Global Crossing, the landscape for IPOs
has changed. Taking a company public is no longer an
automatic decision - even for those companies who are good
candidates. Oh, there are lots of reasons to go public -
access to capital, increased liquidity, employee
compensation, publicity, and prestige. But before you jump
on the "public" bandwagon, make sure you've considered the
following points.

Have a golden parachute handy?
Anytime you take on a money partner, you risk losing control
of your company, and maybe even the company. Jim Clark,
before his huge success with Netscape, was essentially
forced out of his first venture, Silicon Graphics, by the
venture capitalists he initially partnered with to get
started.

Some entrepreneurs chafe at the constraints of being a
public company. Richard Branson of Virgin is a good example.
After taking his company public, Branson discovered he
really did not like sharing profits and working with outside
directors of the company. Branson and his management team
eventually executed a management buyout to take the company
private again.

Research any anti-takeover measures available and build them
into your IPO, if possible. Remember, though, investors
won't be willing to pay top dollar for a company where the
management can't ever be replaced.


Sexy enough?
Your company must have an "investor appeal." This means that
your industry, services, or products are extremely popular
with consumers, and therefore, very attractive to investors.
If your product or service isn't "sexy," going public is not
for you because brokerage firms probably won't even talk to
you and a privately sponsored IPO -which is an option - is
really not for the weak at heart.


Do you know your "why"?
A business needs a reason to go public, for investment in
future growth. If it currently is cash rich and has no
intention of explosive growth that requires more capital,
there is very little benefit either for the owners, or
future shareholders. Also, unlike in the heady days of
dot-com-ville, you have to justify the infusion of cash;
don't expect anyone to look favorably on corporate fitness
centers and fancy desks!


Are you comfortable with "sharing" - profits and
information?
In exchange for the infusion of cash which is generated from
an IPO, you agree to give up a portion of your profits which
are returned to the investors. Essentially, you're sharing
the rewards with your partners, as they come in and assume
some of the risks for you.

Some companies resist going public because of the loss of
confidentiality for company operations, policies, and
profitability. This is especially important for companies
who depend on proprietary technology to create its goods or
services.


Do you have a good business plan?
Part of the IPO process is completing the disclosure
document, which is very important in convincing investors of
the viability of your IPO. Without a well-defined business
plan in place, you may find it difficult to fully answer the
disclosure document questions, and investors may find your
offering less attractive. The business plan you'll need can
run from 25 to hundreds of pages, and can cost $5,000 -
$20,000 to produce.


How much more reporting are you willing to do?
Public companies are often put under a microscope by
investors, customers, competitors, regulators, etc. There's
also a tremendous push these days for greater transparency
with financials. The public market is demanding not just the
numbers, but how those numbers are derived. As the head of a
public company, you will be required to file reports with
the SEC, any exchange you list on, and comply with any
applicable state securities law. All these reports cost
money to produce and also provide information to your
competitors.


Are you a lone wolf?
If you are successful with your IPO offering, someone else
will own a share of your business - and they may want a say
in how things are run. You will be subject to their ideas,
opinions and demands on how you should run your company. If
you are not willing to share control with your new partners,
or if you don't trust their decisions, this loss of control
is the deal breaker for you. And if your business relies
heavily on the ability of one or more key personnel, realize
that going public can put huge restrictions on these people.


Got an extra million lying around?
An IPO costs money! A typical firm may easily spend $750k on
direct expenses related to an IPO. And that doesn't even
consider the indirect costs of management time being spent
on IPO, disruption of business while preparing the IPO, etc.
You'll also need a good outside team - IPO consultants,
accountants, attorneys, underwriters and PR specialists -
none of whom work for free, of course!


What if you don't have free time to begin with?
Most people are surprised at the amount of time it takes -
outside your normal business operations - to prepare your
offering. During this time-intensive process, your role of
actually managing the company may suffer. You'll be meeting
with, and giving presentations to, potential investors. And
the toll on your personal life can be significant -
preparing to go public will eat into your time for family
and friends. Yes, it's only short-term, but it may be as
long as one year, and you do need to be prepared for long,
sometimes grueling, 13 to 15-hour days.


Is your management style conducive to shepherding employees
through the changes?
Many business owners report that the process of going public
changes the internal dynamics of a company. It's important
to maintain open lines of communications among your staff
during this time. Once you've gone public, don't let the
staff feel they need to worry about day-to-day fluctuations
in stock price, distracting them from their jobs. And
sometimes, employee benefits programs are modified after an
IPO, which can also make employees nervous.

If your current management style is very close-to-the-vest
and you usually only share information on a strict
"need-to-know" basis, the productivity of your employees
post-IPO may suffer severely. A more open management style
is more conducive to successful post-IPO operations.

[A special thanks to these experts who helped me compile
this list: Willie Crawford, Andy Beard, Dien Rice, Ankesh
Kothari, Richard Dennis, Stephan Iscoe, Jeff Burnham,
Members of The Seeds of Wisdom Business Forum, and The
Willie Crawford Forum. M.M.]



©2005 Maria Marsala, former Wall Street Trader. Elevating
Your Business works confidentially, one-on-one, with women
business leaders; CEOs and Presidents of service companies,
to help run more effective and efficient businesses while
positioning themselves to achieve mind blowing financial
and personal success.  Join "SIMPLE Business Solutions
Ezine" to receive your one-page business Plan audio and
2 reports in your Welcome Note now.
http://www.CoachMaria.com