Advantages of an Initial Public Offering for Companies

An initial public offering offers a lot of benefits to companies that perform them. Apart from the money, investors are also given the chance to enjoy other benefits. 

Funds for the Company 

Quite obviously, the biggest advantage of an initial public offering is money. Most offerings fetch hundreds of millions of dollars for the company. 

The proceeds from the IPO give the company the chance to fund research and development, get more employees, decrease debt, and support capital expenditure, acquire new tech, or other companies. Overall, the money gotten from the IPO can transform the growth of the company.

Exit for Private Stockholders 

Each company has shareholders who have contributed to substantial amounts of time, money, and resources. These investors usually go for years without experiencing any significant financial return on their investments. 

An IPO would be a great exit means for investors. They can potentially receive huge amounts of money or liquidate the capital that they presently have in the company. The huge sum that they can get from the IPO can convince them that it’s time to receive some rewards for their “sweat equity”. 

However, bear in mind that for founders and investors to receive proceeds from an IPO, they will have to sell shares on a secondary exchange. 

Publicity and Credibility 

For the company to expand and develop, it needs more exposure to potential customers who know about and trust its products. Having an IPO pushes the company at the spotlight. Analysts and the media report about initial public offerings from around the world to help investors decide which offering is best to invest in. 

Companies also receive credibility. Before completing an IPO, a company has to go through scrutiny. Additionally, people trust public companies more than the private ones.

Cost of Capital

Before a public offering, companies usually have to pay higher interest rates in order to receive loans from banks or give up the ownership or receive some funds from investors. Having an IPO can diminish the difficulty of receiving more capital. 

Before a company starts its formal IPO preparation process, it has to be PCAOB audited, which is a more careful audit than other prior audits. This creates great confidence on the company’s reports. Such an assurance can result to lower interest rates on loans from banks. 

Stock as Payment 

A company that is public also enables the use of publicly traded stocks as a means of payment. Meanwhile, a private company has the capability to use its stock as a payment means, it will only be valuable if there’s a favorable exit opportunity presents itself. 

Meanwhile, public stocks are basically a form of currency that you can buy and sell at a market price at any moment. This can be very useful when paying off employees and acquiring other businesses. For a business to grow, it has to hire excellent employees.

When the company pays in the form of stocks, they can acquire better-skilled employees even if the base salary is lower than what others are offering.