What Are the Pros and Cons of a UK-based SME Going Public in Today’s Market?

March 7, 2024

In today’s complex and rapidly evolving business landscape, small and medium-sized enterprises (SMEs) are always on the lookout for ways to accelerate growth and success. One option that many consider is to go public – that is, to list their company on a public stock exchange. This article aims to comprehensively weigh the pros and cons of such a move for SMEs in the UK in 2024.

The Advantages of Going Public

The transition from a private to a public company can unlock a host of opportunities. A public company generally has a larger pool of capital, a higher profile, and potentially a better opportunity to enhance its business growth.

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Attracting Investment Capital

Going public gives a small or medium-sized business access to a large pool of investment capital. This can be a game-changer for an SME looking to finance new product development, hire more staff, or expand into new markets. By selling shares to the public, you can raise substantial funds without adding to your company’s debt.

Enhancing Company Profile

Becoming a public company can significantly enhance your company’s profile. This is because public companies generally have a higher visibility in the market. They attract more media attention and are able to draw in more customers, which can lead to increased sales and profits.

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Providing Opportunities for Growth

With the increased capital and visibility that comes from going public, you can seize greater opportunities for growth. This could include launching into new markets, acquiring other businesses, or investing in research and development. All of this can help to boost your company’s market share and profitability.

The Disadvantages of Going Public

While going public can offer a host of benefits, it’s not a decision to be taken lightly. There are several potential downsides that need to be considered.

High Costs of Public Listing

Taking a company public is an expensive process. There are significant upfront costs involved, including underwriting fees, legal fees, and the cost of preparing a prospectus. In addition, public companies face ongoing costs such as annual listing fees, compliance costs, and increased accounting and legal fees.

Loss of Control

As a public company, you will have to answer to your shareholders. You’ll also need to comply with extensive regulations and reporting requirements. This can lead to a loss of control over your own company, as you’ll need to make decisions that are in the best interests of your shareholders, even if they conflict with your own vision for the company.

Increased Scrutiny and Pressure

As a public company, you will face increased scrutiny from shareholders, analysts, and the media. This can put immense pressure on your company to deliver consistent growth and profitability, which could potentially lead to short-term decision making. The need to focus on quarterly earnings can distract from long-term strategic planning.

The Role of SMEs in the UK Economy

SMEs play a significant role in the UK’s economy. They account for more than 99% of the businesses in the UK and provide around half of all jobs. Therefore, decisions about whether to go public have wider implications for the UK’s economy and industry.

Providing Jobs

SMEs are a major source of employment in the UK. The decision for an SME to go public could potentially lead to job creation. With increased capital, a public SME is likely to hire more staff as it expands its operations.

Boosting Industry

The decision for an SME to go public can also impact the broader industry. It can increase competition and stimulate innovation, which can ultimately benefit consumers.

What to Consider Before Going Public

The decision to go public can have far-reaching implications for your SME. It’s not a decision to be taken lightly, and there are several factors you should consider before taking the plunge.

Are you prepared for the costs?

The process of going public is expensive, both in terms of upfront costs and ongoing expenses. You need to ensure that your company is financially prepared for this undertaking and that the potential benefits outweigh the costs.

Can you handle the pressure?

Going public means facing increased scrutiny and pressure from shareholders, the media, and the public. You need to be prepared for this and have strategies in place to manage it.

Is your business model sustainable?

For success in the public market, your business model needs to be sustainable. Investors will want to see a clear plan for growth and profitability.

In conclusion, while going public can provide SMEs with a golden opportunity for growth and success, it comes with significant challenges and responsibilities. It’s a decision that requires careful consideration and planning.

Impact of Going Public on SMEs’ Supply Chain

The decision for an SME to go public can significantly impact its supply chain. As small businesses become public limited companies, they often experience growth and venture into new markets. This expansion can influence the supply chain as the demand for goods and services increases.

Increased Demand for Goods and Services

When a small or medium-size enterprise goes public, it typically seeks to grow and expand. This can lead to an increased demand for goods and services, which can strain the existing supply chain. With an increased capital, a public company can invest in expanding its supply chain to meet this enhanced demand.

Need for Improved Supply Chain Management

The increased complexity that comes with the growth of a small business into a public limited company can necessitate improved supply chain management. SMEs must consider investing in advanced logistics and supply chain management systems to handle the increased volume of goods and services. Moreover, as they become more visible in the market, these businesses will need to ensure the reliability and efficiency of their supply chains to maintain customer satisfaction.

Opportunities for Partnerships

Going public can also open up opportunities for partnerships with other businesses within the supply chain. These partnerships can lead to cost savings and improve the efficiency of the supply chain. For instance, a public company can negotiate better deals with suppliers due to the larger volume of goods or services required.

SMEs and Equity Financing: An Alternative to Going Public

Before making the decision to go public, SMEs should explore all available options for raising capital. One such alternative is equity financing, which involves raising capital by selling shares of the company to private investors.

Lower Costs with Equity Financing

Unlike going public, equity financing typically involves lower costs. There are no underwriting fees, legal fees, or costs for preparing a prospectus. Plus, there are no ongoing costs such as annual listing fees, compliance costs, or increased accounting and legal fees. Therefore, equity financing can be a more cost-effective solution for SMEs looking to raise capital.

Retaining Control with Equity Financing

With equity financing, small businesses can retain more control over their operations. Unlike a public company, a privately held company does not need to answer to public shareholders or comply with extensive public reporting requirements. This can allow the business owner to pursue their own vision for the company without outside interference.

Potential for Long-Term Investors

Equity financing also has the potential to attract long-term investors who are interested in the success of the business. These investors can provide not only capital but also valuable advice and guidance, which can be crucial for an SME’s growth and success.

In conclusion, going public is a significant decision for any SME. While it offers many advantages such as access to a larger pool of capital, increased visibility, and potential for business growth, it also comes with challenges such as high costs, loss of control, and increased scrutiny. Additionally, it impacts the business’s supply chain and necessitates improved supply chain management. On the other hand, alternatives like equity financing offer a cost-effective way of raising capital while retaining control over the company. Therefore, each SME must carefully consider its unique circumstances, goals, and challenges before choosing the path to go public.

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