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Small companies looking for growth often use an initial public offering to raise capital. But going public brings both advantages and disadvantages.

The biggest benefit of an IPO is the capital raised. It can fund research and development, or pay expenses and debt. IPOs often generate publicity, introducing products to consumers who may not otherwise have heard of them. Eventually, that leads to increases in market share. IPOs can also provide company founders with an exit strategy, letting them cash in on their hard work and success.

But when going public, companies must make extensive disclosures and submit to stringent regulations. The Securities Exchange Act of 1934 regulates the financial reporting that companies must provide. Many companies, especially new ones, don’t like the rules.

The costs of complying with SEC rules and regulations are high, and getting higher. New fees for things like financial reporting documents and investor relations departments are increasing the price tag.

Market pressures often compel public companies to focus on short-term results instead of long-term growth. Investors that want to see rising profits often scrutinize management’s actions. And sometimes, management behaves questionably in order to boost those earnings.

Before going public, a company should weigh the advantages and disadvantages to determine if it’s the right move to make.

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