Public Advantages

Benefits – For You and Your Investors

• Liquidity. Having public stock provides liquidity for you and your investors. If you are currently a privately held company, your private stock is not as liquid as it would be if it were publicly held stock. You have the ability to create an entirely new market for your stock when you take your company public and it may also help the company borrow more easily.
• The liquidity will also benefit your investor’s investment and may make your company worth more to them. It can also mean that they will be able to form an exit strategy or diversify their current portfolios.
• Trade Stock. Going public means that your investors will be able to buy, trade, or sell your company’s stock much more easily. (The initial stock that they receive will have a one-year hold).
• Instant Stock Quotes Investors will be able to instantly get a stock quote either on the Internet or through their broker.
• Employees Also Benefit. Taking your company public can result in financial rewards and independence for not only the owners and investors but the employees who can also be stockholders.
• Estate Planning. If you have family members that are counting on you to provide for them in the future, the stock in your publicly traded company can be used as a part of your strategy for retirement. You can use these assets to allow your family the financial freedom they may need when you are no longer with them.
• Stable Stock Price. The limited amount of available public stock that will be out in the marketplace (and the 1-year hold) will produce a strong and stable trading price.

Benefits – For Your Company

• Access to Capital. Taking your company public will provide potential investors a feeling of confidence in your company, which will be translated into the ability for you to raise more money.
• Mergers and Acquisitions. If you have been interested in merging or purchasing another company, you can also benefit from taking your company public. The stock that is sold in your company may be worth as much as cash to another company. If you do decide to attempt a merger or acquisition using your stock, you will be able to use the current market value of your stock when performing the transaction.
• Compensation for your Employees. You cannot overlook the benefits that you can reap by attracting highly qualified employees by offering them stock in your company. This can also be a reason that these people decide to stay with your company especially if your industry has a high turnover rate. This can make the difference in retaining your key employees.
• Attract High-Level Executives. You can also use this option to attract high-level executives for your company. While you can offer stock in a private company to potential employees, publicly-traded stock is usually more valuable and desirable to your future executives.
• Gives your Employees the Incentive to Work Harder. The liquidity of public stock allows your employees to reap greater rewards. They will feel as if they are a real part of your company instead of a mindless drone pulling in a regular paycheck. By making them part owners with you, you are sharing with them your drive to make your company the best it can be. The incentive to work harder to make the company better is instantly rewarded when the stock price goes up. This incentive ties in your employee’s future with the success of their company.
• Prestige. If you are worried about the appearance of your company, or its overall public appeal, when you take your company public, it can provide an air of not only legitimacy but also stability. Public perception of your company is key in having the resources and abilities to expand your company. The prestige of your company will also reflect on you as the owner. Typically, founders, co-founders, and managers of public companies are regarded as having a level of prestige.
• Public Companies are Generally Worth more than Privately Held Companies. In many cases, the difference is quite substantial. When you take your company public, you will see an almost immediate increase in value to you, as the owner.

In a recent study conducted by the United States Chamber of Commerce, it was revealed that when owners of private companies sell their companies they receive on average 4 to 6 times their net earnings. Owners of public companies sold their companies at an average of 25 times their net earnings. (i.e. – a company earning $1 million would be worth $25 million). Companies within the technology sector performed at even higher averages. These figures cannot be overlooked.

Why does this occur? Investors in a private company are generally concerned with the “non-liquidity” of their holdings, and they feel that they are lacking access to a public market. This can mean that two companies in the same sector can be valued at a different level, based only on whether or not they are publicly traded company.

An exit strategy may play heavily into an investor’s decision to back your company, as mentioned earlier. If they will be able to sell their stock to the public, they will feel more comfortable investing in your company. It can also assist you, as the owner, in having more leverage when discussing options with potential investors.

Additional Benefits – For Your Company

• Consumer Confidence. If you do business with the general public, you need to be concerned with consumer confidence. By taking your company public, you can convince these consumers that you mean business. This can assist you when dealing with mergers, potential new employees and the public as a whole. Your company’s reputation is solidified when you take this step.
• Gain Awareness. More people will become aware of your company as it goes public and you will be able to gain important exposure. If your customers or suppliers become shareholders or joint venture partners, this can translate into increased repeat sales and business. Banks will also consider the prestige of your company when making decisions about lending money. You will be looked upon as less of credit risk. It may also result in getting lower interest rates on these loans.
• Publicity. The publicity that comes when a company goes public should never be overlooked. You will probably get mentioned in newspapers, magazines, and online. Private companies rarely receive this amount of attention. The attention is also free, which means that you can utilize it in an overall advertising strategy to maximize the benefits of this free publicity. Public companies also receive attention from analysts and daily attention from stock market tables. This keeps your company’s name in the public eye and increases your ability to create an instantly recognizable brand. You may be able to use this publicity to attract new partners or merger possibilities that never would have existed when you were a privately held company. The constant attention from the media, coupled with annual reports required by the SEC creates a firm foundation for your company.