The idea of going public can be overwhelming. Many companies consider going public and as a fashion business owner, you may be wondering if it is right for you. An initial public offering (IPO) is the process of a private company selling its shares to the public on a stock exchange for the first time.
What are the benefits of going public? You will be able to raise capital quickly because of this process. You can then use the money for several purposes such as product development, marketing, and supply chain management. Also, publicity is an advantage. If the public can buy shares of your fashion company, often more and more people will be aware of your brand and view it as reputable. As a result, you may reach new markets and increase sales. Another benefit of going public is being able to offer stock options as part of a compensation package for employees.
If you are thinking about going public with your retail business, you may have no idea where to start or what to consider. However, I am here to be your guide and help you before you make a decision.
In this article, we will discuss the 7 things to keep in mind before going public with your fashion company:
- Your Executive Team
- Predictability of Your Finances
- Types of IPOs
- Different Ways to Go Public
First, consider if it is feasible for your retail business to go public. Look at the market you are targeting and decide if it is big enough. Usually a larger market increases your revenue. You do not want limited opportunities just because the market is too small. Then you should figure out how your fashion brand will stand out. There are always gaps in the retail industry that you can take advantage of. If you are offering new styles or products with added features that have not been seen before, buyers will find it more desirable to purchase from you rather than your competitors.
Furthermore, you need to determine if your retail company is able to grow quickly. When you begin selling your shares to the public, your brand will have more exposure to potential customers, which can result in a significant amount of people buying your products fast. There is no point in going public if you are not prepared for high growth or do not have the resources to fill orders.
Next, you must look into the costs of going public and decide if your fashion company can afford it. Keep in mind that you will have a lot of legal and accounting expenses when going through the IPO process. When your business becomes public, you have to file financial reports quarterly and annually. Therefore, you may need to implement new software systems to meet the requirements of operating as a public company. You might also have to hire additional teams such as one for investor relations or another for taxes to help you manage your retail business effectively. These expenses are not cheap. And, you do not want to spend all of your money on going public if you are struggling to make sales and sustain your brand.
If you calculate that the costs are not an issue for your fashion business, investors will be able to see that you are financially stable as well. Then it may help them believe that you will have a favorable final valuation.
When you are contemplating going public, timing is everything. You need to figure out if now is the right time for your fashion brand to undertake an initial public offering. You should first examine the climate of the retail industry. If the markets are unfavorable, you might want to wait longer to go public. You will be more likely to prosper if the fashion industry is in a boom. Plus, investors will feel more confident, which is important to your success.
Is your retail business ready to make this time commitment? An IPO typically takes between six and nine months to complete. Make sure you are prepared to dedicate your time because once you start the process of going public, delaying it can negatively affect how your brand is perceived.
4. Your Executive Team
Another thing to keep in mind is the executive team you have in place. It can be very difficult to take your retail company public by yourself. You will want the help of other professionals. Therefore, ensuring you have the best executive team is crucial.
If you do not have all your top-level positions filled yet, you should finish recruiting prior to an IPO. Building your ideal leadership team is critical because members will be responsible for making decisions that will ultimately impact the future of your brand. When recruiting candidates, look for passion, so that you are hiring individuals who care about your fashion company and who will take action to accomplish your business goals. They should demonstrate strong communication and strategic problem solving skills too.
In addition, an initial public offering opens your fashion business to greater public scrutiny. For example, if any of the members of your executive team were previously involved with alarming business issues or have a criminal record, investors may find it concerning. Furthermore, now that social media has become so popular, controversial news about your company can spread quickly and reach a large number of people. Negative publicity can lead to a poor reputation, which will result in potential customers shopping elsewhere and less opportunities for growth. Before deciding to go public, you must take into account the history of all individuals associated with your retail brand.
5. Predictability of Your Finances
The predictability of your finances is essential to determine before selling your fashion company’s shares to the public as well. It will be advantageous to have correct predictions about your financial performance. As a private business, you should already be using forecasting systems, so that you have evidence of your company meeting growth expectations.
Investors want to see how you did over time and they will be more interested in buying shares if they know the outcomes they can anticipate from your brand. Accurate predictions will show investors that they can trust you and there will be less risk for them. You will also benefit from this predictability because you can better prepare for what is to come and make any necessary changes.
6. Types of IPOs
Now you need to look at the types of initial public offerings your fashion company can use. There are two main types of IPOs: a fixed price offering and a book building offering. You can utilize these types individually or combine them. A fixed price offering is when there is a set price at which you offer your shares to investors. Demand is only known after the close of the issue. Investors have to pay the full share price in order to participate in this IPO.
Meanwhile, book building deals with bids. Your retail business creates a price band where the floor price is the minimum share price and the cap price is the maximum share price. Investors state how many shares they would like and how much they are willing to pay. There is no fixed price, instead your company decides the final price once bidding closes. With this IPO type, demand is known every day.
7. Different Ways to Go Public
Prior to going public with your fashion brand, you must take note of the different initial public offering methods. No process is perfect for all businesses, therefore it is beneficial for you to do your research and see which method fits your company the best.
The traditional IPO process involves selling new shares to the public. The first step is to hire an investment bank/underwriter to guide you and ensure that the IPO is completed successfully. Then the underwriter has to conduct due diligence, which requires a lot of documents to be filled out. The third step is to file your company’s prospectus with your country’s Securities and Exchange Commision (SEC). After being approved by the SEC, set a date to initiate the initial public offering. You will have to figure out the number of shares to be sold and the offer price. Next, stabilization occurs where the underwriter is able to purchase shares in order to keep the price steady. The last step is transition to market competition. This transition occurs 25 days after the IPO and allows your fashion brand to evaluate your valuation based on the market.
Another method to take your retail company public is to use a SPAC. SPAC stands for special purpose acquisition company. It is created to raise money through a traditional IPO process to buy another business. Once a SPAC becomes public, it will acquire or merge with your private company and as a result take it public. SPACs have become popular in Italy recently.
In some countries, direct listing (DPO) is a way for your fashion business to go public as well. In this method, your company offers existing shares directly to the public. No underwriters or roadshows are needed. This process can be quicker to complete and save you money. But keep in mind, direct listings are best suited for businesses that already have a strong customer base.
There is clearly a lot to think about if you are considering offering your shares to the public. Many businesses want to do this because of the countless benefits. Today we covered the 7 things to keep in mind before going public with your fashion company. First, figure out if it is feasible for your brand to undertake an initial public offering. Look at your market, establish how you will stand out, and decide if your retail business is ready for rapid growth. Second, consider if you are able to afford an IPO. Going public is not a low-cost process and you must take into account all of the potential expenses. Third, you need to determine if the timing is right before going public. You should examine the climate of the fashion industry and work out if you are fully ready for this time commitment.
The fourth thing you need to look at is the executive team you have in place. Finish recruiting your leadership team if you have not done so yet and check the background of all individuals associated with your retail brand. Fifth, determine how predictable your finances are. Investors will want to know if you are meeting your growth expectations and accurate predictions will also help you prepare for the future. The sixth thing to remember is that there are two types of IPOs. Figure out if the fixed price offering, book building offering, or a combination of both is best for you. Seventh, keep in mind the different ways your fashion company can go public. Depending on the country your business is located in, some methods such as a traditional IPO, SPAC, or direct listing process may be perfect for you.