Deciding to take a company public offers many rewards for those who have a financial stake in a business. While there are risks, the benefits of going public include an influx of cash, increased public awareness, better valuation, attracting better talent and more easily raising funds for future projects.
Understanding the benefits of going public is part of what students learn in a high-quality online MBA program. Graduating with an MBA sets up business leaders to succeed in starting their own companies and eventually reaping the benefits of taking it public.
The Benefits of Going Public
Going public isn’t right for every company. Some, after considering the pros and cons of an IPO (initial public offering), decide to remain private. But for those who forge ahead, the decision to go public can lead to many rewards.
When companies decide to go public, they usually are justified in the decision by some combination of the following.
Influx of Cash
The biggest reason for going public is the influx of cash from investors, which immediately makes a business more liquid and able to expand operations, do research and development and pay off existing debt.
Increased Public Awareness
Another benefit of an IPO is the increased public awareness of a company. That’s because many IPOs generate favorable coverage from the financial press, which raises awareness among consumers of a company’s products and services. This can increase the company’s market share.
A publicly-traded company must share all its finances in filings with the Securities and Exchange Commission. That’s a very good thing if the numbers are good, as companies often trade on the market at 12 times their value (or even higher). That’s a great benefit for investors who plan to sell. Private companies, on the other hand, only sell at about 5 times current value.
Attract Better Talent
Highly visible public traded companies tend to attract the best talent in the industry. The best managers and creative personnel want to work with the best-known names in their chosen industry, and they want the stock options that come with a public company. These factors can help a business attract and retain better employees.
Companies that go public also typically have an easier time raising capital or obtaining financing for future projects. With the value of the company increased, business owners can secure private funding more easily. In some cases, a company will have a secondary stock offering to raise more capital.
These benefits of going public represent the main reasons why business executives decide to issue an IPO. Understanding the financial reasons behind this move is one of the many interesting topics that online MBA students will develop expertise on as they develop their business leadership skills.