Running a successful business requires a lot of input in form of time and resources which may be hard to come by, especially for startups. In fact, it is almost inevitable that as your business grows to a certain level, you will find yourself looking for new sources of funds to finance its expansion. You may want to add a whole range of products or services to your existing ones; your market may also be expanding necessitating a corresponding expansion of the business. These situations call for increased spending in hiring more staff, buying or leasing machinery, acquisition of additional space, technology, and working capital. The stock market may be an important source of funding if you are able to make proper use of it.
Traditionally, people have relied on bank loans to fund the expansion of their businesses. However, you can raise money to meet your business needs by listing your company on the stock market. Small and medium-sized businesses have discovered the potential of stock markets and are going public and listing their shares on local stock exchanges to raise money for their expansion needs.
Although listing on a stock exchange has lots of compliance requirements which makes it too expensive for small companies, many countries allow small businesses to list their stocks in a special section or board with less stringent requirements. Some countries also have over the counter (OTC) and regional exchanges appropriate for small and medium-sized businesses. You will, however, have to meet the exchange’s listing criteria such as a minimum period of profitable operation and minimum turnover.
In the process of seeking to raise money through stock market, you will need to enlist the services of an investment bank, an accounting or a financial advisory firm to conduct a valuation of your company, draw projections for the next few years and advise you on the most appropriate number of shares to offer to the public and at what price. These advisers will be instrumental in marketing your stock offering to their clients and help raise awareness about your company’s intended initial public offering (IPO).
Going public will enable you to raise capital that you do not need to pay back. However, you should always have at the back of your mind that you are selling a stake in your company and shareholders will expect to receive dividends and to participate in decision making.
Listing your company on the stock exchange is advantageous in that if it continues to thrive, you can tap the market again for more funds as the need arises. Your cost of doing business may also go down following your IPO. Credit rating agencies usually give higher ratings to listed companies because they keep complete and transparent accounts in compliance with regulations governing publicly listed companies.