Advantages and Disadvantages of IPO

 

As a company continues to mature, they look at growing the business bigger with a successful venture, the profitability is there even if they are a closely held private company only with a small group of shareholders who share the profits and losses in the business, well this is not going to be perennial, company to expand their operation, go public is the next big venture which small business are always keen on, which require the company to fund in huge capital investment which they may not rely on banks, due to the banks being conservative in their approach may refuse to fund in huge capital requirement.

As the business contemplates the issuance of IPO there are certain advantages and disadvantages of going public with IPO which are to be kept in mind:

Advantages

  • a lot of money is raised when the issue of shares goes public and the company may use it to clear off all its debts, invest in research and development, expand their operation, improve their infrastructure and even introduce a new line of products
  • the liquidity of the company increases as they have employees, venture capitalist, stakeholders who have toiled to bring the company to such high success, and the IPO is one way to repay them in form of equities, other incentives for the employees for their service and performance
  • the cash flow is increased and the operation of merger and acquisitions become a lot easier with the smaller competitors, with the shares being acquired from the smaller company the company is in a better cash position
  • Since public companies are better managed in terms of reporting, fiscal data and with a lot of due diligence and compliance requirements they are more visible and credible
  • the financial situation of the company improves with a lot of capital being generated from the IPO, the cash flow is improved and they are better in negotiating loans with banks to fund in the future requirements of the company for pecuniary situations

Disadvantages

  • the reporting cost is a way to high as rolling costs are involved on complying with a lot of public reports, statements, proxy details all of which have to file with the regulatory agencies and then distributed to the shareholders with all the information. The number of Audits and reports are more and every report has a cost attached to it.
  • as the number of shares sold to the public is large the shareholders have a say in the decision-making process which becomes even more tedious with a lot of difference in opinion, the voting process, bringing all the shareholders in a meeting room as a focal point is pressurizing.