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Understanding How to Take My Company to IPO
IPO is an acronym that stands for Initial Public Offering. This refers to the process of taking a private company public. The IPO procedure generally involves a private company offering its shares for public purchase. Upon which, the shares then become available for trade in the open market and become listed on a stock exchange. If you happen to be an owner of a private company, and you find yourself asking, “what exactly goes into the process of how to take my company to IPO?”, this article serves as a comprehensive guide to IPO registration, and an overview on all the ins and outs that involve IPO concerns.
IPOs are commonly utilized by newer established companies that need and require additional capital in order to grow and expand or by private companies wherein the investors and owners are seeking to monetize their initial investments.
If it is the case that market conditions fall perfectly in line with a particular business during the time of the IPO, then the original investors of the private company are able to reap in fortunes due to the higher value of the new stock in comparison to the original investments.
Generally speaking, a private company that decides to go public by means of IP does so by having the services of an investment bank underwrite the share issue. And through negotiations between the company and the investment bank, decisions as to how many shares are to be issued will be discussed.Depending on the established agreement, the underwriter may guarantee the settled amount by purchasing a few or even all of the shares and then reselling them to the public market.
Investment banks exercise preparatory efforts for the IPO by submitting registration information to the Securities and Exchange Commission or SEC, which includes details regarding the share offering, management information, financial statements, etc.The SEC then performs a general background check on the submitted registration in order to make sure that all the appropriate information has been provided in the submission.
Upon SEC approval, the company and underwriter proceed with marketing to the customers by issuing a series of prospectuses that describe the company and the offered shares. Shares are commonly offered to large-scale institutional investors such as pension funds, life insurers, etc. that are able to afford purchasing large shares.Eventually, the shares can be purchased by individual investors through stock exchange listings.
What are the Benefits of IPO?
When asking yourself questions as to ‘how to take my company to IPO’, it is important to get fully acquainted with the many benefits and advantages that this can bring to your company. Taking your company to IPO is an exciting time in your company’s growth because it entails that it has become successful enough to require a larger capital in order to expand.
In many cases, taking your company to IPO is the only way for it to receive enough money to fund massive growth. For the company owners, going public is the time to cash in on all the hard work that they have put in. Understanding ‘how to take my company to IPO’ means that similar to many business owners, you can award yourself with a significant portion of the initial stock shares –this stands to make millions on the day the company enters the public market.
‘Getting in the ground floor’ is the stage that investors refer to when IPO shares skyrocket in value when opened in the stock market. IPO also allows for a company to attract top prospects because it can offer great stock options.
The increased liquidity from IPO can assist a company in attracting the best talent by means of enabling the company to grant restricted stock awards or stock options.
Public offerings can provide a business with the currency as to acquiring other business and a valuation in the event that your business becomes an acquisition target.
The higher the valuation of a public company and the greater liquidity in the public markets, there is a stronger access to capital. While the initial public offering may be time-consuming and high in cost, as long as there is market demand for the stock, a company can always issue more stock.
IPOs serve as a means for founders and employees or other shareholders to get liquid on their acquired investments, in order to see the financial rewards of all the hard work that they have put into building the business.
The act of taking your company public can also be perceived as a marketing event for your company, as to building interest in the business as well as its many products and services.
Going IPO is one of the most significant stages in the life of a company. The capital that has been raised by means of a successful public offering opens avenues and drastically boosts a company’s ability to expand into new markets and grow through acquisitions.
In terms of the economy, the number of IPOs that are being issued is generally seen as a sign of the stock market’s health. During the event of a recession, the number of IPOs drop due to it not being worth the hassle of depressed share prices. The increasing number of IPOs usually means that the economy is becoming stronger, more stable, and getting back on its feet again.
It is important to note that not all companies or businesses can or should go public. There is a wide array of factors that should be put into consideration before coordinating with investment bankers. These factors mainly include:
Meeting financial qualifications set by different exchanges.
The appropriate IPO strategy for business and business goals.
The market receptivity to IPOs within your particular sector.
How to Prepare for an IPO?
Before fully inquiring and asking yourself ‘how to take my company to IPO’, there is number of questions that you have to first acquaint yourself with in order to fully grasp and have a concrete idea of deciding whether the risks of investing IPO are worth it. Your IPO strategy will be determined by the answers to these questions.
IPOs are ideal for company owners that already have their core portfolio in place, have the ability to analyze income statements and balance sheets, and enjoy great quantities of disposable income. Taking a company to IPO level can even serve the public good in the same sense that investing in municipal bonds can help in society as a whole. Before putting your capital at risk for IPO, here are a few key questions:
If my company does not grow at a rate that justifies its price, what is the probable cause? What are the chances of those failures occurring?
What are the competitive facets that protect the business? Patents, trademarks, or key executives? What is preventing other firms from coming in and obliterating the promising economics?
Would I be fine with owning the company of the stock market was to close in the next 5 to 25 years? Is my business and financial ground sustainable or is obsolescence due to technological development a great possibility?
In the event that the stock was to fall fifty percent as the result of short-term issues in the company, will I be able to continue holding without any strain of emotional attachment if I can determine that the long-term potentials of the business still remain bright and promising?
Tips to Prepare Your Business for an IPO:
Get an Early Start
The process of taking your business public can take a lot of time. You must also be sure to contribute a significant amount of your business resources to the IPO effort. The prep work is going to require several hundreds of hours from you and your executive team.
Financials Must Be Settled
Successful IPOs are dependent on organized financial record keeping because businesses will be heavily audited. Financial reports can be a stumbling block without proper preparation. Upgrading from manual or Excel accounting to automated financial reporting technology solutions can be a great help.
Putting Money into Consideration
Prepare for taking your company public by setting aside money from wherever you can. Companies that decide to go IPO are for the most part, in strong financial shape. But it is still crucial to keep this in mind.
Focusing on the Future
Although average employees may not necessarily notice palpable differences in the everyday operations when the company goes public, company owners and executives will. There will be a new set of rules and regulations to adhere to. You will have to constantly sharpen your presentation skills as to impress and attract potential investors and build strong media connections as you shift towards growth and the future.
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What is the IPO Process?
Once you’ve fully prepared and met all the financial requirements, it is now time to dive into the process of ‘how to take my company to IPO’. It usually takes about four to eight months in order to complete this process. Below are the major steps that are involved:
The Right Management Team
Your senior management team should have great experience in finance and accounting. Taking a company public requires that your management teams develop additional strengths and capabilities. It is imperative that key managers possess strong communication skills as to presenting the company’s vision and place in the market in order to satisfy intensive research analysts and investors.
Upgrading Financial Report Systems
You also need to ensure that you have the proper systems in place as to the flow of accurate and time-efficient information. Closely monitoring and identifying the right metrics can drastically improve business results. Upgrading your financial report systems enables you to anticipate any potential weakness in the controls and tackle them accordingly.
Selecting Investment Bankers
In this stage, you need to choose investment banking partners that you can agreeably coordinate with; they need to have the strong analyst coverage along with distribution and sales abilities that your company requires for a successful IPO.
Drafting the Prospectus
It is in this part of the IPO process that lawyers begin to get involved. The IPO prospectus is a principal document that is filed with the SEC as part of the IPO registration statement. The prospectus is subject to extensive disclosure requirements because it essentially serves as the positioning mark or ‘story’ of your company –highlighting your company’s strengths and strategy in relation to market opportunity.
Pricing the IPO
After filing the registration statement and beginning the review process, the underwriters will set a price at which the company and selling stockholders will agree to sell shares to the underwriters at closing.
Completing the Offering and Beginning as a Public Company
IPOs typically close on the fourth business day upon pricing. The issuer and selling stockholders will then release their shares for the underwriters to purchase (at a discounted rate from the offered public shares). Following the issuer’s ‘quiet period’, your company will now be in constant communication with the market, in terms of periodic filings and interactions with analysts and investor communities.
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Going IPO with Sage Solution
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Business potential always begins with strategies and an upholding of the standard. Our 3 programs: Re-Tooling, Pre-Investment, and Investment involve our extensive and comprehensive research on your business and provide recommended actions as to ensure great opportunities for investment and exponential growth of entrepreneurship.