IPOs Have Certain Disadvantages Too

Every strategy and every action has a reaction. Similarly, every process has some advantages and some disadvantages as well. When a company, irrespective of its size, decides to go public then there are many regulations and processes to follow and execute the plan in detail.

You need an army to complete the formal launch

It cannot be done by one person or a small team. The company has to have an army of people working for the IPO before it can be launched successfully. Planning is the most crucial step before launching an IPO. The team should consist of professionals required for various stages. For example, to follow the regulations, you need to have corporate lawyers. For financial decisions like a number of shares, price band etc., you need to have very experienced finance professionals guiding the company. Then you also need underwriters and book runners.

Thus we can see that there are many added costs if any company wants to launch an IPO. This is one of the biggest disadvantages when a small company wants to list on the stock market. It needs to spend a lot of money to get the advantage of IPO as the company has to ensure that the team comprises of experienced people and that costs money.

The company’s image is important

The company has to be in business and successful if it wants people to buy its shares. So its image has to be created, with an eye on people’s perceptions. The company should have a clear financial and successful record in the area of its services or manufacturing. The company might have been operating on a small scale. So a plan for the use of future capital inflow through the IPO has to be in place. It should be easily implemented once the capital comes in. The public should be able to understand the plan of investment and the future growth prospects, then only they will be encouraged to buy the stocks.

Create good defenses also

The company has to be prepared with a good plan in order to prevent any malpractices in terms of takeovers. It should also have complete compliance with governance in the corporate area. The financial statements need to be audited for any discrepancies and should follow all the accounting principles.

All the relevant information comes out in the public domain when an IPO is launched.It may include financial and business information. This may also be used by others such as competitive businesses or customers and may harm the IPO. Once the company is in public domain it is also liable for more scrutiny and litigation by people. Looking at all these points, a company has to be completely sure if it wants to go the IPO route or stay a private company.