As the market condition steadily improves, several Small and Medium Enterprises (SME) these days are planning to go public, i.e., they are planning to raise money from investors through an issue of shares. The money they raise can be used to expand the business or pay off debts. However, an Initial Public Offer (IPO) has to be re-considered over and over again for a company because it has risks involved. Here are some factors an SME should consider before filing for an IPO.
Reasons to file
Apart from raising and generating funds, a company earns credibility and a good reputation when it is listed. As it is constantly in the public eye, there is greater chance of transparency.
Under the rules of stock market regulator SEBI, the company’s IPO has to be graded by a well-known ratings agency before the company can approach investors. These grades are to help investors understand the potential of a company. An SME needs to have a good business model with ensuring business ideas. The grading agency will verify if the source of loans and financial history of the SME is credible. The agency will also ensure the capability of the product and the company’s reputation in the market before giving the grade. An SME should ensure a high standard of its quality before it undergoes grading.
Awareness among investors about the SME is also very important to achieve the goal. The SME should ensure that people know about their products, strengths, future projects, specialties and any other positive aspect. As the word of mouth spreads, investor interest will be generated.
It is important to understand that an IPO process is expensive. If the market response not favourable, the issue might not be sufficiently subscribed and might have to be withdrawn. In such an event, all advertising, operations costs etc. would get wasted.