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Any brand has the potential to reach the big leagues and play with more established corporations. You feel this as a small business owner when your products or services no longer cater to a niche audience. When your brand becomes self-sustaining and undergoes rapid expansion, you know the time has come to go public and tap into a wider investor pool. At this point, an initial public offering or IPO is the only rational step to take.
It’s any small business owner’s dream to make it this far, but the process is barely straightforward, considering the legal and technical requirements needed to list your company in public exchanges. There’s a ton of preparation involved to complete the process, and you may not have the experience or the technical knowledge to do it right. That shouldn’t intimidate you from tapping into your brand’s potential. So long as you learn the basics, you can make the IPO process less complicated as you move along:
1. Know Your Business’s Financial Situation
You wouldn’t want to drive right into the IPO process without knowing if your business has what it takes to go public. The fact that you have steady revenue growth is not enough. A more in-depth look into your financials will give you a better way to determine readiness. Aside from analyzing its current valuation, you will also need to show that your business is financially healthy in the long-term.
This is where you will need to ensure all your financial statements and books over the past two or three years are clear, accurate, and have undergone auditing. Expect the process of determining financial readiness to take more than a year, but it would help if you could build a highly effective accounting system that’s capable of handling the more complex requirements of going public.
2. Understand Your Business’s Long-Term Market Potential
Another key factor is knowing if your business could go beyond your initial market and attract a larger audience. Before going public, you will have to demonstrate that your business has the potential to raise capital from motivated investors and enjoys a stable demand for the products or services it sells. If it only caters to a small community of customers, then your business barely has the potential to increase revenue and draw in investors.
Determining this would mean calculating your total addressable market or TAM, a model used to analyze the viability of your IPO as well as your potential market size. You can use a top-down approach by analyzing general market trends and investor and consumer preferences, and narrowing these down into an obtainable market. On the other hand, a bottom-up approach helps you determine your ideal customers based on your pricing structure. The latter is preferable for its accuracy in determining market potential.
3. Get the Right Team and the Right Tools
It’s not enough to understand the complexities of the IPO process. You need people you can rely on to make sense of the regulatory climate and ensure that your company doesn’t commit costly errors, especially during the pre-IPO phase. As an example, take these Figma IPO insights, which saw the company undervaluing its shares at $33, which is not at all proportionate to the surge in market demand the day it went public last year.
This left Figma with at least $1 billion of untapped capital as the price closed at $115.50. The uptick is nothing short of impressive, but it highlights the importance of getting accurate insights from the right team and platforms.
As you start the IPO process, you need a robust team that can help not just with financial governance but also with investor relations, as well as market strategy and promotions. Networking forms the very core of every activity you undertake in the IPO process, so aim to build partnerships with documentation experts and recruit a corporate legal adviser to help with compliance. It also matters to acquire tools that can help with equity management and financial reporting, especially if you’re planning to offer stock options to employees.
Endnote
Going public is proof that your business is no longer limited by geography and capital. You just have to know what it takes to make the IPO process as smooth as possible as you bring your brand to a wider arena.
