Going public — that is, selling stock or debt to the general public — is an extremely complex and massive undertaking.
You should not consider going public unless your business is earning well over a million dollars in after-tax profits and has steady profitability, excellent growth prospects, and a tremendous thirst for funding that other sources can’t provide.
Entrepreneurs who have taken their firms public are generally shocked by the amount of energy and anxiety that goes into the initial public offering.
Later, they’re frustrated by the added demands placed on them as CEO of a public, as opposed to a private, firm.
My company is on track to make millions! I should take it public, right?
Not so fast!
In the U.S., the regulations involved for a small public company aren’t onerous — they are absurd! Legislation such as Sarbanes-Oxley makes accounting requirements for public companies ridiculously complex and expensive.
As a small public company, you could easily rack up a $400,000 bill just for annual accounting fees. Then there are the rules and regulations you need to pay attention to: quiet period, press releases, nonpublic disclosures, and deciding whether events are material and need to be reported.
I have seen small public companies get into trouble with the Securities and Exchange Commission (SEC) over just about nothing, while the SEC totally ignores complaints for years about people like Bernie Madoff, who ran the largest Ponzi scheme in the history of the world, or the “high-speed traders” on Wall Street who right in the public eye rip off investors every day.
The issues for small public companies don’t stop with just the government. You also have cockroach legal firms that might make their entire living by blackmailing small pubic companies.
What they do is look for a small public company — small enough not to have a powerful in-house legal team but large enough to have some liquid assets. Then they wait until profits suddenly fall, and start a class action suit against the company.
They allege whatever seems like the easiest case and then wait for the company to settle out of court. Why do we let these pariahs exist in the U.S.?
Well, I won’t tell you I know why, but I will tell you that there are a lot more lawyers sitting in the U.S. Congress than there are businesspeople!
If you really want to go public, another option is to go public overseas. Unfortunately, the U.S. has made it clear that it is not interested in attracting small public companies.
Takeaways You Can Use
- Going public is rarely a feasible or well-advised route to raising money for a new small business.
Bob Adams is a Harvard MBA serial entrepreneur. He has started over a dozen businesses including one that he launched with $1,500 and sold for $40 million. He has written 17 books and created 52 online courses for entrepreneurs.
