Going Public Sale: On Funding A Growing Business

Going Public Sale: On Funding A Growing Business

From rags to riches! When your business success was a blast and you are thinking of a big office, branches, manufacturing plants or distribution outlets, and purchase more equipment, a large amount of money is needed.

Sizeable sums of money for marketing may be needed to meet increased competition. For instance, you would like to transfer your card printing company to a bigger office that would accommodate your large business cards printing equipment. You have to advertise for the new office for your customers. And since you have transferred to a new unknown place, and worse, you are now, again, unknown to your customers, you should seek your advertising firm to help you with this. And as your card printing business grows, you will be lined up and compared to other similar businesses with your level.

The large amount of money you will need for expansion, advertising, among others, are usually sought from such sources as public sale of stock or merger. You can cut the price of your business cards that are not sold and other cards that has plenty of stocks left. You can sell it with 50 percent off the price; or you can also use the buy-one-get-one-free scheme.

Public sale of stock is also a viable alternative for raising capital when the business has a well established track record. The public equity offering sometimes has the dual purpose of raising additional funds for the company and enabling original investors to realize a financial gain by selling a portion of their shares. The expenses involved in "going public" are significant. There are legal and auditing expenses as well as the cost of good placement services the reputable investment banking firm that agrees to underwrite or sell the stock offering. Often these costs can amount to 20% or more of the total proceeds of the stock sale. The company will have to devote a lot of its efforts to maintain good relations with its stockholders and the Securities and Exchange Commission. There will be strict disclosure and reporting requirements. And if the company does not perform well with its equity capital, additional public financing will be out of the question.

On the other hand, sale of public stock can net the company more debt-free funds than, say venture capital firms can supply. Going public will often produce a higher stock than selling stock to a single buyer.

Expanding markets, new technology, and the need to diversify often mean that large infusions of cash will be needed beyond the company's own resources and credit available from financial institutions. A public offering of stock permits the owner to retain control of their company while reaping the benefits of an increasingly valuable equity position if growth continues. But it should also be noted that buyers of stock in a public offering look primarily at the potential for capital gain rather than dividends. This means that for the stock offering to be attractive, the company's growth record must far exceed the industry average.

In addition, going public alters the character of the company and changes the way the entrepreneur is accustomed to operate. Profit margins, market share, and other information may have to be disclosed, which could affect the firm's competitive position. Stockholders, analysts, auditors, and brokers will also want access to information and will feel they have a right to question a variety of decisions and actions the management has made. The effect is that the closely held company accustomed to a low profile and free-wheeling operation now becomes accountable to many outsiders.

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