A Step by Step Guide on How to Take a Company Public
The stock market seems to be doing better than ever, even with millions of people unemployed. This means that investors know that the stock market is too big to fail.
This could be the perfect time to take your company public. In June 2020, 39 companies went public and raised a combined $15 billion in market capitalization.
If you think that you can make it on the stock market, you need to know how to take a company public. It’s a lengthy process that could make or break your business.
Read on to learn more about taking a company public and how you can ensure your IPO is successful.
What Does It Mean to Take a Company Public?
Taking a company public means that you offer ownership in your company to the general public. As of right now, your company is privately held. When you take your company public, you have an initial public offering (IPO) where people can purchase stock in your company.
Many businesses will use the IPO to raise funds to expand and grow. A successful IPO can make the executive team and early employees millionaires.
The downside of a public company is that stockholders control the company. The focus of the company shifts to providing shareholder value, which is determined by quarterly revenue and profits.
How long is the IPO process? It all goes well, you can expect the public offering process to take about 9 months. It may be a bit less than that if you have the right team in place.
A big part of that is choosing a CPA firm, which will make sure that all of your financials are correct as you go through the process. The right accounting firm will make each step much easier.
Now, let’s get to how to take a company public. These are the steps that you need to take to go from a privately held company to IPO.
1. Get Your House in Order
Is your company ready for an IPO? You may have turned a small business into a big business, but that doesn’t mean that you’re ready to go public.
You need to get your house in order before you start the process. You’ll need to work closely with your accounting firm and CFO to make sure your financials are in order.
It helps to have everything in order before you go public because you have to comply with regulations as a public company. This is where corporate governance becomes important.
You’ll also need to make sure that you understand the weaknesses of the company and be prepared to find ways around them. You should also make sure that the market is ready for an IPO.
2. Hire an Investment Bank
If you’re certain that now is the right time for an IPO, you’re going to have to hire an investment bank. This is the company that will underwrite your IPO. You could hire one or more banks to underwrite the IPO.
The investment bank does most of the heavy lifting in the IPO process. The investment bank will perform due diligence with your attorneys and financial team. This means that they go over your books and audit every last document.
They usually create the official documents that get filed with the Securities and Exchange Commission. Since this is the regulatory agency that oversees IPOs and all investment offerings, every document has to be accurate. This is where having a good financial team in place pays off.
3. File S-1 Document
The Securities and Exchange Commission requires companies that intend to go public to file an S-1 document. This puts investors on notice that your company is going to go public.
The S-1 document contains just about every detail about your company. You’ll have to include financial performances, information about the executive team, the business model, your competition, and investment risks.
4. Meet Investors
Have you ever heard of the “dog and pony show?” This is what that phrase refers to. You and your executive team criss-cross the country to meet with potential investors.
You’ll have the chance to present your company, focus on the strengths of the IPO, and show investors that your business is worth investing in. This time is well-spent because you’ll meet with a lot of institutional investors that handle large funds.
If you can convince them that your stock is a goldmine, then they’ll make large investments in the IPO.
5. Take Stock Orders
Once the roadshow is over, the last thing that happens is that the investment bank takes orders on the day before the IPO. This will give everyone a sense of how successful the IPO will be.
The IPO price will be set and the amount of stock available will be made the day before the IPO. The stock price and offering will depend on the success of the roadshow. If there were a lot of orders, the higher the IPO price.
6. Have a Successful IPO
This is the day when your hard work pays off. Your company is officially a public company. You’ll probably be at the stock exchange to ring the opening or closing bell to celebrate going public.
An IPO is considered to be successful if the closing price on the first day is about 10% higher than the IPO price.
How to Take a Company Public
How to take a company public starts with getting your house in order. You’ll then go on a whirlwind tour over the next several months between choosing an investment bank and ringing the bell at the stock market.
Once the IPO is complete, you’ll need to focus on corporate governance and making your quarterly numbers to keep the stock prices up. Your business will have all the capital it needs to grow and be a success.
If you had a successful IPO, you’re probably worth quite a bit of money. Read this article to learn about buying exotic cars now that you can easily afford one.