Many entrepreneurs dream of building their corporate empire and, perhaps someday, taking their company public with a listing on a stock exchange, but is going public really the best choice? To be sure, there are some big advantages in doing so, but it is not without its drawbacks.
In this article, we will discuss the pros and cons of running a private vs. a public company.
When you start a company, you usually do so because you’ve got an idea for a product, service, or brand that you want to present to the world. Your company’s decisions and strategy are up to you and (perhaps) a small group of investors who are passionate about the business.
This makes it easier to focus long term on growth, and the values of the company.
But operating as a private company may also mean that you’ve got fewer resources, less liquidity, and less name or brand recognition. This can make it more difficult to attract and retain top talent since providing certain employee benefits – like stock options – may not be feasible for you.
Additionally, it is more difficult for a private company to acquire its competitors or other businesses. Doing so would require either having large amounts of available cash or taking on debt, and your investors could be limited in their ability to liquify their shares.
Going public with your company can seem like a dream come true. There is no doubt that being listed on a stock exchange will dramatically increase public awareness of your company, and there is a certain amount of prestige that goes with it as well.
Public companies also tend to have an easier time growing their balance sheets, taking over competitors, and providing incentives to their employees.
But there are some cons to going public too.
For starters, going public is an expensive exercise and administrative and regulatory burdens placed on public companies are exponentially higher. The scrutiny of being a public company means that you may have to run your company for quarter-to-quarter results, versus focusing solely on the medium and long term value creation.
And while your average investor will have more liquidity than they would in a private company, management will face certain restrictions and lock-up periods for selling their own shares.
Is it better for a company to remain private or go public?
Ultimately, the answer to this question will depend on the specific entrepreneur and company. The entrepreneur must first ensure that the business has the resources necessary to go public, but then they must weigh the pros and cons as to whether it is the right thing to do and the right time.
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