3 Things to Know Before You Commit to an IPO

3 Things to Know Before You Commit to an IPO

For entrepreneurs and investors alike, a primary goal of building a successful company is to undertake an IPO eventually. An IPO, or Initial Public Offering, is when a company publicly offers its stock for sale. A double-edged sword of sorts, an IPO can raise an immense amount of funds for a company while also increasing the chances of a buyout. Committing to an IPO is a big decision, one that could take your business over the top and change your life forever.

It’s also a decision that implicates legal, financial, investment, and public relations components as well as strict federal regulations. Yes, an IPO raises money, but that new public profile comes with massive responsibility and high levels of scrutiny and accountability.   

Thus, proper planning is essential for a successful IPO. Merely winging your IPO will result in delays, expensive mistakes, and potential regulatory noncompliance. You might also fail to manage investor expectations and lose your competitive edge.

As a result, the IPO process can take years, and with so many moving parts, businesses should never try to rush the process. Consequently, there are several things to keep in mind before you consider an IPO:

1. Going Public isn’t an Easy Process

Going public is a long, complicated process with steps you must carefully execute with your business’s future and proper compliance in mind. 

There’s the planning stage, where you develop a long-term business plan, create your IPO timeline, analyze your business’s performance, and confirm the health and growth potential of your company.

There’s the execution phase, where you build management and advisory teams, review your processes and internal infrastructure, confirm that you’ve installed strong corporate oversight measures, recruit strong board members, and cultivate investor relationships.

Moreover, there’s the post-IPO phase, where your company must live up to expectations. On top of everything else, you have a business to run. You must continue to steer the company responsibly, protect its future, and learn how to answer to your shareholders.

2. The IPO Process is Heavily Regulated

The Sarbanes-Oxley Act of 2002 (a.k.a. “SOX”) regulates IPOs and is enforced by the Securities and Exchange Commission (the “SEC”). This legislation has strict regulations and hefty punishments for noncompliance, including but not limited to requirements that auditors for public companies register with the SEC, managers create internal controls and processes for financial reporting, and corporate executives personally certify the accuracy of financial statements.

In short, the SOX is intricate, and the SEC means business. Companies who undergo successful IPOs understand that and plan accordingly. 

3. You Need Legal Counsel During The Process 

There’s a reason why you never hear of a major company going public without a team of lawyers. With so many internal, financial, and regulatory hurdles to clear, companies eyeing an IPO must retain legal counsel to navigate the process.

Counsel can take you from the early planning stages to your debut day and beyond by advising your IPO strategy, identifying governance and compliance issues, drafting required documentation, negotiating deals between brokers and investment banks, and preparing you to lead a public company.

With a broad understanding of an IPO’s demands and experienced legal counsel in your corner, you will ensure that going public is the best move for the future of your company.

Are you considering taking your company public and want to know where the start? Do everything in your power to guarantee a proper IPO for your company. To learn more about how your company can go public, schedule a consultation.

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