IPO Process Simplified: Steps Every Business Owner Should Follow to Go Public

Taking a company public is one of the biggest decisions a company board can make. If you’re not familiar with the IPO process, the whole thing can be daunting.

The benefits to your business and to your personal life could be huge. In 2016, 98 companies raised a total of $18.54 billion

That can be life changing for business owners and change the direction of their companies. If you’re thinking about taking your company public, you’ll need to know more about how IPOs work.

Read on to learn about the advantages of filing for an IPO and what the process is all about.

What is an IPO?

An IPO is an initial public offering of stock in a company. These offerings are listed on stock exchanges like the New York Stock Exchange or NASDAQ.

As a public company, anyone can purchase stock in your company. You also have to abide by SEC regulations and prepare quarterly and annual reports, which is a 10-K report. Your company must also have a board of directors to guide the company’s decisions.

Right now, your company is a privately held company. As a privately held company, you can have investors and not have to report your financials or accounting information. Your company is also held accountable by investors. If your company doesn’t perform, your company can suffer.

There are a few primary reasons why a company would want to go public. An IPO is a way to raise money to allow the company to grow at a faster pace and get a large influx of cash.

It’s also a way for your early investors to cash out with a return on their investment.       

You might automatically assume that going public is for large companies. There are plenty of large companies that are privately held. IKEA, Fidelity Investments, and Cox Enterprises are all privately held companies.

Smaller companies go public, too. You can see IPOs of all types on the stock exchanges, from cannabis penny stocks to tech IPOs.

The IPO Process

Since you’re taking your company public, you need to comply with the SEC’s regulations. That’s the main reason why you need to fully understand the IPO process. Failure to comply with the SEC’s regulations could result in stiff fines and penalties for a mishap.

Hire an Investment Bank

Your first step in the IPO process is to find one or more banks to underwrite your IPO. This is a much different process than hiring a CPA.

Investment banks will analyze your offering, look over your company financials, and file the appropriate paperwork with the SEC.

Invite several banks to pitch you. Investment banks will present an overview of your company and an assessment as to how your company will do on the stock market.

You’ll come to an agreement with investment banks and structure a deal so you make the targeted amount of money and the banks make money, too.

Do Your Due Diligence

Once the deal is in place, bankers, lawyers, and your financial team that are working on the IPO will perform due diligence. Everything that goes into the official documents has to be audited and verified.

They also have to analyze any potential risks for investors. This will be part of the documentation that is filed with the SEC.

This process happens a few months before leading up to the IPO.

Make it Official: File the S-1

The S-1 is the official registration of your IPO. This is a publicly available document that has a lot of information about your business.

Your business model, financial performance, competitive analysis, investment risks, and the executive team and compensation are detailed in this document.

The SEC requires this information to be available to investors to help them make informed decisions about their investments.  

The Dog and Pony Show

A few weeks leading up to the IPO is the road show, better known as the dog and pony show. This is where company executives meet with investors to discuss the IPO.

Companies will invest big time in the road show because it helps generate demand among institutional investors.

T-Minus 1 Day Before the IPO

You should be nervous as can be this day. It’s after the dog and pony show and you’re about to become a public company.

The day before you go public, the bankers will take all of your orders and set the IPO price and the size of the offering. Those numbers are largely based on the demand generated during the roadshow.

Once the price is set, you’re ready to go public as long as the market isn’t experiencing volatility.

Ring the Bell!

One of the best traditions of the New York Stock Exchange is the opening bell. The morning and closing bells are rung by CEOs of companies that are going public that day. If you’re lucky, you can be among them. 

You and company executives are likely to spend the day at the exchange where you’re listed. What happens this day is anyone’s guess.

The company’s stock can go in any direction depending on a few factors. Investors who got in early might want to cash out right away.

There is a lockup period to avoid a massive sell-off by company insiders. That usually lasts about 3-6 months.

If your stock is 10-15% higher than when you started the day, you’ve had a successful IPO.

Going Public Changes Everything

Going public is a huge step for any company. It’s as terrifying as exhilarating for company executives. If you follow the IPO process closely, you can raise a lot of capital for your company. That can mean more jobs and a more stable footing.

As the head of a public company, you have a number of legal responsibilities to your shareholders. You have to make sure that you’re in compliance with the SEC’s strict regulations.

Would you like more tips to help you build your business? Take a look at these business articles today.