Going public may raise money, but it also has a number of costs, both implicit and explicit.



Once a company goes public, its finances and almost everything about it - including its business operations - are open to government and public scrutiny. Periodic audits are conducted; quarterly reports and annual reports are required. Company finances and other business data are available to the public, which can sometimes work against company interests. A careful reading of these reports can accurately determine a company's cash flow and credit-worthiness, which may not always be perceived as positive.





A public company is subject to SEC oversight and regulations, including strict disclosure requirements. Among the required disclosures is information about senior management personnel - particularly compensation - which is often criticized by stakeholders.





A public company is subject to shareholder suits, whether warranted or not. Lawsuits may be based on allegations of self-trading or insider trading. They may challenge executive compensation, or they may oppose or question major management decisions. Sometimes a single, disgruntled shareholder may bring suit and cause expensive and time-consuming trouble for a publicly traded firm.





Preparation for the IPO is expensive, complex and time consuming. Lawyers, investment bankers and accountants are required, and often outside consultants must be hired. As much as a year or more may be required to prepare for an IPO. During this period, business and market conditions can change radically, and it may not be a propitious time for an IPO, thus rendering the preparation work and expense ineffective.





The pressure for profitability each quarter is a difficult challenge for the senior management team. Failure to meet target numbers or forecasts often eventuates in a decline in the stock price. Falling stock prices, moreover, stimulate additional dumping, further eroding the value of the equities. Before buyers and original holders of the IPO stock may liquidate their positions, a no-sell period is often enforced to prevent immediate selloffs. During this period the price of the stock may decline, resulting in a loss. And again, business and market conditions may change during this period to the detriment of the stock price.





Rights

Related Articles
  1. Investing

    The Ups And Downs Of Initial Public Offerings

    Initial public offerings aren't the best option for every company. Consider these factors before "going public."
  2. Investing

    What is a Public Company?

    A public company has sold stock to the public through an initial public offering (IPO) and that stock is currently traded on a public stock exchange.
  3. Investing

    IPO Basics: What Is An IPO?

    Selling Stock An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never ...
  4. Investing

    IPO Basics: Conclusion

    Let's review the basics of an IPO: An initial public offering (IPO) is the first sale of stock by a company to the public. Broadly speaking, companies are either private or public. Going public ...
  5. Markets

    6 Signs It's Time to Take Your Business Public

    There's much more to going public than getting a pile of cash to grow your company. Here's how to tell if you're ready for everything an IPO entails.
  6. Markets

    IPO 101: What You Need to Know About Going Public

    Taking a company public isn't easy. Here's what you need to know to make sure you and your firm are prepared for the realities of being a public entity.
  7. Investing

    The Road To Creating An IPO

    Through an Initial Public Offering, or IPO, a company raises capital by issuing shares of stock, or equity in a public market. Generally, this refers to when a company issues stock for the first ...
  8. Trading

    Why Public Companies Go Private

    Privatization can give management more time to make money for investors, but at what cost?
  9. Entrepreneurship & Small Business

    IPO vs. Staying Private: What's Best for Your Biz?

    Taking your company public or staying private? Doing an IPO is costly and time-consuming; it also means you now have stockholders to answer to.
  10. Investing

    How An IPO Is Valued

    The initial valuation of an IPO can determine the success or failure of a specific stock - but how is that price determined?
Trading Center