Characteristics of Companies
That Should Not Consider Going Public
Going public is a big decision for any company. It can bring in a lot of capital and give the company a lot of visibility, but it also comes with a lot of scrutiny and responsibility. Not all companies are well-suited for going public, and there are a number of characteristics that should give companies pause before making the leap.
Here are some of the characteristics of companies that should not consider going public:
Companies with a short track record. Companies that have been in business for less than a few years are generally not ready to go public. They need to have a proven track record of success and be able to demonstrate that they can continue to grow and generate profits.
Companies with a lot of debt. Companies with a lot of debt are not good candidates for going public. Investors are likely to be wary of companies that are already in financial trouble, and they may not be willing to invest in a company that is already carrying a lot of debt.
Companies with volatile earnings. Companies with volatile earnings are also not good candidates for going public. Investors like to see companies with consistent earnings, and they are likely to be hesitant to invest in a company whose earnings are all over the place.
Companies in a rapidly changing industry. Companies in a rapidly changing industry are also not good candidates for going public. Investors like to invest in companies that they can understand, and they are likely to be hesitant to invest in a company that is operating in an industry that is constantly changing.
Companies with a lot of insider ownership. Companies with a lot of insider ownership are also not good candidates for going public. Insiders are people who have a lot of information about the company, and they may be able to use that information to their advantage if the company goes public.
Companies with weak internal controls. As part of the annual audit process, a public company’s independent outside auditors perform an extensive examination of a public company’s internal controls. Companies with weak internal controls and no desire to invest time and money in improving them should not pursue becoming public.
If your company has any of the characteristics listed above, you should carefully consider whether or not going public is the right decision for you. There are a number of other factors to consider as well, such as the amount of capital you need, the level of control you want to maintain, the annual compliance costs of maintaining a public company which can be over $500,000, and the amount of risk you are willing to take.
If you are not sure whether or not going public is the right decision for your company, you should consult with a financial advisor or investment banker. They can help you assess your company’s readiness for going public and make the best decision for your business.
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.