The Reasons Why a Company Decides to “Go Public”

Large companies around the world have opted to go public after years of staying private. Going public means that the company will no longer solely be owned by …

Cash Flow Graph

Large companies around the world have opted to go public after years of staying private. Going public means that the company will no longer solely be owned by one person or one group. It means making the company undertake a public offering, also known as an IPO (Initial Public Offering), and selling some of its shares through the stock market. There are numerous reasons why a company would consider going public and there are generally little to no disadvantages for doing so. 

Read on below to discover some reasons why a company decides to go public.

To Increase Cash Flow

Cash Flow GraphThe number one reason why companies decide to go public is to increase cash flow. Stocks are what is known as “liquid assets” and once a company sells some of its shares, it increases its liquidity. The funds that go into the company from selling its shares go into the company itself in most cases; therefore, reaching a higher number of goals and a higher capital faster. This increased cash flow can go into the company to strengthen it in several ways, making it likely to earn more over time. The more stocks are sold, the higher the cash flow, yet going overboard may lose the ownership of the company altogether.

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To Increase Brand Strength

Brand strength and credibility are gained when a company is more discoverable. When a company goes public, the amount of people that find interest in the company increases drastically as it gains visibility. There is also the IPO process, which is a make it or break it situation, where companies hire investment bankers to market and set the IPO price and date. If the prices are not set accordingly or accurately, the company loses instead of gains in terms of funds and brand strength, and credibility. It is essential that competent investment bankers are hired in order to keep the image and prestige of your company intact.

To Increase Market Value and Personnel

Going upCompanies are largely measured by its cash holdings and assets, but there is more to them than that. As mentioned, credibility, likeability, and trust are all essential intangible assets that hold a company together and define it among other companies. A successful combination of cash holdings, assets, credibility, and a trusted image will all dramatically increase market value and create a demand for the company, as well as create a place where personnel and possible employees would want to work.

To keep the company in check, a fine line must be found. Although selling shares will increase the cash flow, selling too much may give you the disadvantage of losing the company and not having full control over it. Another disadvantage is the fact that the company must be regulated in terms of financial reporting, which for newer companies may be troubling as they need to reach the terms of the Securities and Exchange Commission (SEC). If these issues are handled efficiently, then the pros will undeniably outweigh the cons in most circumstances.

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