An IPO, Initial Public Offering, is a first sale of stock by a private company to the public. Most companies go public to raise money. This might sound very attractive to small business owners who want to grow their business, but there are some major drawbacks to IPO’s.
Consider these pros and cons before you decide whether to sell shares to the general public or not.
Uncertainty About Stock Prices
Usually, if profits increase, so do stock prices. So, if your business shows stable and slow growth, so will your stock prices, right? Well, it’s hard to forecast how stock prices will react to your business’ results and events on the market. Unstable or flagging stock prices might cause friction within your company, especially when your employees hold shares in your company too.
Loss of Control
When issuing shares, you let other people become owners of your company as well, which means you will lose (some of the) control over your company. Your new investors will have a say in your business as well and might grant their wishes while you do not fully agree. Moreover, the possibility exists that if shares fall too low, someone else may buy up enough shares to kick you out.
An IPO costs a lot of time and money. Accountants, bankers, advisers, and lawyers are all needed and they cost money. Since 2002, after a slew of accounting scandals, there is a lot of paperwork that needs to be done before you can go public.
Besides the drawbacks, there are also reasons why an IPO can actually help your company to flourish. Here are a few:
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