Are there Any Advantages? Here are the Advantages and Disadvantages of Stock Market Flotation
Flotation in the context in which we are going to discuss it refers to the process of taking a company from entirely private to partially owned by the public. This is done by issuing shares which the public can buy. It is a method through which companies can obtain external financing for new projects or expansion rather than using their retained earnings.
However, much like many other aspects of the stock market, it is difficult to know when the right time is to take this step with your company, or even whether there is ever a good time. You’re dealing with many unknowns when market forces come into play, whether your aim is a Tesla stock forecast, trying to decide whether to hold onto your Amazon stock in a bear market, or whether market flotation will work out well for you. Let’s examine some of the drawbacks and advantages of going this route.
We already mentioned one potential advantage. If you take a portion of the company public, assuming people want to buy in, then you can use the cash infusion from their purchase of stock to start on some form of long-awaited expansion or a new project that you feel will bring in more revenue. If there are venture capitalists who are interested in your company, it will also allow them to realize their investment more easily. It also places a value on your business, where before there was probably a good deal of speculation in that regard. It’s also worth mentioning that you can handle acquisitions by using quoted shares as currency.
There are some possible disadvantages too, though. Market fluctuation is probably the biggest one. If the market takes a turn on you, it will mean that you’re vulnerable, and it might take some time before you get back to your previous standing. You’re also answerable to your shareholders. Their interests might not always be the same as yours, and if they feel like you’re taking the company in a direction of which they do not approve, it is even possible in extreme circumstances for you to lose controlling interest. This happened recently to the founder of Papa John’s Pizza, and he was removed from his position.
When Do You Know When the Time Is Right?
Taking all of this into account, are there indicators that a particular time is right to implement a flotation plan? It’s going to have less to do with what the market is doing, and more with your long-term goals. If you feel strongly that acquisitions are the key to your company’s future, and you don’t feel like that can happen unless you use flotation for a fresh cash infusion, then you’re going to want to do it at some point. It will probably be at a time when you can set up an expansion plan along with a reasonable timetable and the facts and figures that make it seem logical. If you can do so, you should be able to attract venture capitalists, and you may be able to realize your grandest ambitions.