The IPO process is just the start of a new life cycle for a company. There's a great deal of opportunity for you, but the risks are also significant. And they're not just financial risks, either.
The Fish Bowl
The scrutiny starts the moment a company even begins the IPO process. Significant corporate actions, which can include everything from taking on new clients to acquiring other companies, from hiring people to firing people, will all become suddenly public, which means subject to external criticism and inspection from employees, shareholders, the public, the investment community and regulators.
Plus, when you are public, your financial information is suddenly made available to anyone who requests it, including competitors.
Shareholder Obligation
When you go public, your obligations change to address the needs of shareholders, brokers, securities analysts and the press. And anyone with a stake in the company will require constantly updated information about the company's profits, losses, strategy and more. And since short-term earnings become vitally important to current stake holders, you will have a new need to make sure your long-term business goals balance both current profits with long-term gains.
Reporting Requirements
The Securities Exchange Act (SEC) rules and regulations demand that a public company make quarterly SEC financial statement disclosures, as well as subject to audits as necessary. Stock exchanges will also require public disclosure of significant events.
Public Relations and Spin Control
Public scrutiny means that you and your management will need to keep a sharp focus on public relations as well as disclosure of important company announcements. It is vital to be extremely careful when handling communication with the investment community, in order to avoid selective disclosure of material nonpublic information.
Loss of Control
Going public means, in the end, that you're essentially selling control of your company. And that the new owners, whose combined stake in your business might exceed yours, are likely to only support the company for as long as it remains profitable. Your whole business focus suddenly changes: you must now maintain and increase shareholder value, which can change the whole tenor of the business you originally founded.
An IPO can offer a tremendous amount of potential growth for your company--but it's important when you're making that decision that you carefully weigh the drawbacks that come along for the ride. The process is quite complex and requires a team of legal and financial professionals. Consider sitting down with an accounting consulting firm that has the depth of experience you need before even beginning to make the decision.
This article was written by Katherine, a contributing writer for Utah CPA firm, Tanner LLC. To learn more about Tanner and the IPO process, visit http://www.tannerco.com.
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