Growing a Business to Become a Public Company
December 04, 2013
Given the many regulatory changes, private companies looking to go public should be more firmly established with tighter internal controls than ever before. This will help them meet the rigorous reporting and governance standards required of public companies.
Does Size Matter?
The answer is yes and no. Public companies can range from 3 people to thousands of employees. With the increased reporting responsibilities that come with being a public company, your business structure must be flexible enough to handle the workload. Smaller companies don’t have the same capacity to delegate these additional roles, and many smaller businesses solve this dilemma by outsourcing their accounting department to accomplish what is needed.
As another option, a company might consider increasing their staff size, in key areas, before going public. This will be important since a public company’s CEO and CFO will have added responsibilities that will most likely leave them with fewer hours than they used to have available for running the business. In short, the company size doesn't matter as much as having the right corporate structure in place.
Does Length of Time in Business Matter?
Not necessarily. This is especially true in the technology and life sciences sectors. Timing the market is most important but generally, the owner(s)/investors overall strategy will determine the answer. When growing a company with the intention of going public, there will be a long-term or short-term exit strategy. As the company gains market share and exposure, the owners’ exit strategy may shift. Often times you will hear that a company has become an “overnight sensation;” but, like actors, it sometimes takes years to develop a company to gain market share and popularity that will make them an instant success. To the public, the company might seem new, but it took years to get there!
The bottom line is that company size and/or length of time in business are not always the best indicators whether a company is ready for an IPO. If the business valuation meets expectations, the right corporate structure is in place to handle the added responsibilities, and the company has a solid reputation, then the time might be right for an IPO.
In next week’s blog, we’ll discuss your financing options when your end goal is IPO.