Is Staff Ready?
Does your company have a solid infrastructure of qualified personnel? Specifically, does your company have the personnel who can handle the application process as well as the reporting and regulatory requirements of a publicly held company? Surprisingly, there are many very profitable small businesses that are still run with “seat-of-the-pants” management. Many don’t even have an in-house bookkeeper, let alone a chief financial officer (CFO). They rely on their CPA to prepare annual tax returns and annual unaudited financial statements. That means that they are not getting the financial information that they need on a current basis in order to wisely and prudently run their company. Yet many of these businesses prosper.

The company that decides to go public must have key personnel in place in order to successfully execute an IPO or reverse shell merger and thrive as a publicly held company. An in-house accountant (CFO) is an indispensable member of your team. Other members should include a reputable, independent accounting firm that is experienced in auditing publicly held companies, and a competent securities attorney who knows the ropes and can deal with the regulatory requirements that involve filing for an IPO and dealing with regulatory obligations when your company’s stock is publicly traded.

These personnel requirements are not onerous. But if you’re used to thinking small and will not avail yourself of the necessary talent needed to maintain a company in the public markets, then becoming a public company is not for you.

What Will It Cost?
How much will an IPO cost my company? A lot! There are some unavoidable expenses that will be incurred in the IPO process. These expenses primarily involve the costs of extra legal and accounting services that inevitably arise in the process. Let’s take a closer look at these. As mentioned above, you must have an in-house CFO. This means that, depending on the size of your business, you will be spending at a very minimum an additional US $100,000 for this position. It must be said, however, that there are many entrepreneurial-type CFOs who will take a reduced salary so long as they are given stock or stock options. This might help your cash flow until your company can afford to pay the full price for a CFO.

You also must hire an independent auditor who has experience with auditing publicly held companies. A certified audit that produces so-called audited financial statements is costly. Depending on the size of your business, the cost of an annual audit will probably start at a low of about $40,000 and then increase according to the size and complexity of the audit. You will have to find an experienced securities attorney. The cost of such an attorney for an IPO filing starts at about $50,000 and goes up from there. I have known some attorneys who will take stock as payment for their services. This, of course, will reduce the costs accordingly.

Underwritten or Reverse Merger?
Another decision is to whether to proceed with an underwritten or non-underwritten IPO. The average total cost of a fully underwritten NASDAQ qualified IPO today — including attorneys and accountants – can be as high as $2.2 million, not counting underwriters compensation for raising you capital for your IPO. Reverse shell mergers, on the other hand, will cost less than half that amount.

Regulatory Requirements
You also should consider what follow-up compliance will be needed. And believe me there is plenty of mandatory compliance issues. You must file quarterly reports financial reports (10Q) with the SEC and once a year yearly audit (10K) with the SEC. Not to mention every time there is a substantial event with the company you will have to file an 8K.
After your firm is public, your in-house accountant, outside auditor and securities attorney will be aiding you in complying with the regulatory requirements on an ongoing basis. This follow-up compliance is not necessarily onerous, but it is something that will go on indefinitely. In other words, it will not go away. Therefore, it’s an important element to consider before you make the final leap to a public offering.
On the upside, being public multiplies the value of your company compared to what it would be worth if you remained private. It also provides: liquidity for your stock; ability to use your stock to acquire other companies; liquidity for your estate in that your stock is not only easily valued, but can be more easily sold than stock in a private company; and ability to raise needed capital far easier than if you stayed a private company.