When Is The Best Time TO GO PUBLISH WITH YOUR COMPANY?

CEOs frequently call and ask me what revenue and net profit a private company should have before going public; they appear to believe that there is a magic number that qualifies a private company to become a public company.

If there is no minimum revenue or net profit requirement for going public, when is the absolute best time to do so?

The short answer is when you are not required to or your business is not in desperate need of financing to survive.

Rather than that, you are seeking capital to finance growth and expansion, or you wish to use public shares as a medium of exchange for acquisitions.

However, life is not always perfect, and so we will examine a few questions posed by CEOs who have contacted me inquiring about going public.

What should the revenue and profit margins be prior to going public? A business could have five consecutive years of profitability and still be an unsuitable candidate for going public.

I recently received a call from the CEO of such a company; revenues and net profit were identical for the previous five years, but were substantial in comparison to many of the companies that are going public on the NASDAQ BB and Pink Sheets today.

However, I saw no growth in either revenue or net profit, nor any indication that there would be any in the future; the CEO was unsure of the source of future growth.

I advised him that if he was going public solely to inform his friends that he was the CEO of a public company, he should abstain from going public.

However, if he could develop a growth strategy and write a business plan outlining his strategy for increasing revenue and net income, he could become an outstanding candidate for going public.

The polar opposite of that would be a business that has been losing money for five years but is growing in revenue each year and its losses are decreasing.

This company has a business plan and expansion objectives, which it meets year after year, and going public is part of the business strategy. Therefore, which company do you believe has the best chance of becoming a successful public company?

Investors are constantly on the lookout for growth opportunities. As a result, they will choose the company that has the greatest potential for future profit.

Another situation that I frequently encounter is CEOs who wish to go public but lack the funds necessary for the audit or legal fees.

Certain expenses associated with going public must be met. These CEOs frequently desire a reverse merger as the quickest way to go public, but Public Shells are expensive and may be the most expensive route to take.

When a private company acquires a Public Shell, the purchaser is responsible for conducting extensive due diligence on the Public Shell to ensure that it is clean and does not bring any prior legal issues to the private company.

Due diligence is frequently overlooked by private companies unfamiliar with the ins and outs of the public arena.

As a result, they frequently follow the advice of the shell owner and submit to his demands. When businesses rush to go public, they frequently regret it; short cuts can be extremely costly. I always suggest an alternative to reverse merger to CEOs who contact me, such as a direct public offering, Regulation D, or IPO, but only if their minds are already made up or they have already purchased the Shell without conducting proper due diligence.

I will do everything possible to make it work, but the CEO must be warned of the dangers ahead and how to prepare. For instance, if he has a large shareholder base and a large number of outstanding shares, he must reverse split the shares in order to reduce the number of shares available for sale, including those owned by the Shell owner.

The Shell owner will frequently require the private company to sign an agreement promising not to reverse the share prior to the sale; if the private company agrees to this demand, they are making a grave error.

Additionally, if the company hires an investor relations firm to handle public relations and pays them in stock, the IR will gain a temporary interest in the company’s shares during the IR’s share dump.

An investment research firm must be thoroughly vetted by requesting the names of previous and current clients. Simply pull up a chart of their clients’ stock and see if you notice a sudden increase in the share price followed by a rapid decline once they began dumping their shares.

There is no perfect time to go public, and if you begin planning early, you will be ahead of the game. Begin by having your financial statements audited. This is something that will need to be done, and by doing it incrementally, you will avoid the large expense all at once.

Prepare a business plan that reflects your vision and strategy; you will struggle to stick to a plan that does not reflect your ideal and your vision of what will work.

Ascertain that the business plan is sound and adaptable; it should allow for a change in direction when necessary. A business plan is similar to a road map; it has a starting point and a destination; you have mapped out the route you want to take, but sometimes you will need to deviate from it.

Ascertain that you have capable, competent people in the appropriate positions; a small business is not a place for specialists; you must have people who can multitask or you will be forced to hire additional employees.

Remember, nobody knows your business like you do, but there are certain business principles and ethical standards that must be followed.

Simply following the golden rule “Do unto others as you would have them do unto you” will suffice. Due to the fact that you always reap what you sow.

You must exercise caution when dealing with others. There are numerous unscrupulous individuals in the shell and consulting industries who will convince you to go public even if you are not prepared.

Additionally, they will sell you a Corporate Shell and whatever else they can, and before you know it, you will be contacting a legitimate consultant for assistance, but it may be too late.

I recently received a phone call from a CEO who owned a small business but required capital to finance its growth. The business was growing at a quarter-on-quarter rate but was trading at pennies due to its over 150,000,000 shares outstanding.

I suggested that he perform a reverse split before I approached my financing sources, as nobody would invest in such a diluted company. He responded that he was unable to reverse the shares due to a contractual obligation with the shell owner.

When purchasing a shell, ensure that you are purchasing the entire flow and that the public shares are insignificant.

Otherwise, find another way to go public. The reverse merger is not the only route to public ownership.

Reverse Mergers may be the least desirable option for some individuals; therefore, before taking any action, thoroughly investigate the other available options. If the consultant you hire is only familiar with reverse mergers, it may be time to look for another. There is no ideal time to go public; it must be integrated into your overall business strategy and vision, and it requires a desire to succeed.

If you are interested in taking your business to the next level or have any questions, please visit our website: http://www.genesiscorporateadvisors.com

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