Capital Opportunities for Small Businesses - sbtdc

C A P I T A L O P P O R T U N I T I E S F O R SMA L L B U S I N E S S E S
Assistance with Filings:
NC Department of the Secretary of State
Securities Division
POB 29622
Raleigh, NC 27626-0622
919.733.3924 or 800.688.4507
www.secretary.state.nc.us/sec
Initial Public Offering (IPO)
An initial public offering (IPO) refers to a company’s initial sale of securities to the general public. The
key considerations for deciding whether to “go public” include company size, profitability, current
stock market conditions, nature of industry, market share, experience of management, and future
outlook for the business and industry. Generally, a company needs revenues of around $10 million and
net income of $1 million to be considered an IPO candidate.
An IPO offers the advantage of raising capital for growth while increasing the liquidity of the
corporation. The offering may also improve the ability to borrow in the future since lenders favorably
view a lower debt-to-equity ratio. The disadvantages of public offerings include the possible loss of
control, required disclosure of a wide array of business and personal information, and substantial costs.
Key considerations include company size, profitability, quality of management, market share, industry
position and trends, stock market conditions and other factors. Issues such as feasibility, control,
disclosure and costs must be accurately assessed prior to committing to the IPO process. As a rule,
costs will be at least 10% of the proceeds – higher for smaller or less attractive issues. It is also
important to remember that quarterly performance is strictly monitored and can significantly affect
stock price.
Discussing your company’s objectives with a professional will assist you in making the appropriate
decisions. One such professional is the investment banking firm that underwrites the deal. The
company you choose should have a history of successfully assisting other companies through the IPO
process.
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