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Do you know what an initial public offering is?

An initial public offering, or IPO, is one way that you can change ownership of your company and raise capital for growth or expansion. IPOs can be completed by companies of different sizes and are done for various reasons. Smaller companies tend to enter into IPO processes because they need an influx of capital to maintain growth. Larger companies enter IPO processes to transfer into publicly traded markets.

Whatever reason for entering an IPO process, it's critical that you understand all the ways the sale will impact your business. After your company goes through an IPO, it becomes a public company. That means that you suddenly have to answer to a lot of different regulations and agencies you might not have worried about before. Accounting and legal compliance, among other things, can become suddenly more complex.

While every IPO is unique, here are some common steps in the process.

First, a team is usually formed to review and oversee the process. The team includes representatives from the company, lawyers and accountants and experts on the Securities and Exchange Commission. The team reviews financial data about the company and ensures the IPO is legal and correctly handled.

Financial statements usually have to be submitted for official audit before an IPO can be completed. When you enter into an IPO, you are asking public shareholders to purchase ownership in your company. They will want to see that third-party auditors agreed that your company is solvent and a good investment.

Once these details are handled, your company can file a prospectus with the SEC. You also work to set a date for the public offering. Working with professionals throughout this process is important because it can keep you from making costly legal or accounting mistakes as you seek public status for your brand.

Source: Investopedia, "Initial Public Offering - IPO," accessed Dec. 30, 2016

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