What is an IPO? Guide for SMB Owners

As previously mentioned, IPOs are a lengthy process, typically taking between 12 and 18 months. 

During this time, there are eight steps a business goes through before an IPO. 

Let’s look at each of these steps in greater detail! 

Step 1: Proposals

The first step is preparing proposals. 

At this stage, underwriters present proposals and valuations that list the following details: 

• The underwriter’s services 
• The best type of security to issue 
• Offering price 
• Number of shares 
• Estimate time frame for the market offering 

These proposals allow the company to compare and contrast various services. 

Additionally, the first step gives private companies an inside look at what to expect when going public. 

Step 2: Underwriter

Step two officially selects an underwriter to work with through the transition process. 

Also, during this stage, the business formally agrees to the terms presented in the underwriting agreement. 

This stage is a decision and legality phase. 

A business selects the best underwriter for their needs and ensures all their legal bases are covered!

Step 3: Team 

The third stage in this process is creating IPO teams. 

For instance, a company should create the following teams: 

• Underwriters 
• Lawyers 
• Certified public accounts (CPAs) 
• Securities and Exchange Commission (SEC) experts 

Forming these teams ensures every aspect of the IPO goes smoothly. 

Additionally, surrounding your business with teams of professionals allows you to make informed decisions and proceed in the best way possible.

Step 4: Documentation 

Next, a company must compile information about itself into the required IPO documentation. 

This documentation is called the S-1 Registration Statement, and it is the primary IPO filing document. 

The S-1 Registration Statement has two parts: 

• The prospectus
• The privately held filing information 

Further, the S-1 includes basic information about the expected date of the filing. 

Also, this document is continuously revised throughout the pre-IPO process as certain aspects change. 

Step 5: Marketing 

The fifth step is marketing and updates. 

During this step, the company and its teams create marketing materials to pre-market the new stock issuance. 

Then, the underwriters and executives promote the share issuance to estimate the demand from early investors. 

Depending on the demand, the teams then create the final offering price. 

Throughout the marketing phase, underwriters will make revisions to their financial analysis, such as changing the following aspects: 

• IPO price 
• Issuance date 
• Supply and demand 

Before the IPO, the business must follow the exchange listing and SEC requirements for public companies. 

Step 6: Board Processes 

The sixth step involves a company forming a board of directors. 

This board of directors must ensure the processes for reporting auditable financial and accounting information each quarter. 

Essentially, the board of directors helps keep the financial aspects of the business intact!

Step 7: Shares Issued 

Now, it’s time for the company to actually issue its shares! 

Companies issue shares on a designated IPO date. 

Also, the capital from the primary issuance is received as cash and documented as stockholders’ equity on the company’s balance sheet. 

As a result, the balance sheet’s share value relies on the company’s stockholders’ equity per share. 

Step 8: Post IPO

Many assume the IPO process is finished after a business issues stock and becomes a public company. 

However, there are some post-IPO details to complete! 

For instance, one provision may determine that underwriters can have some time to buy additional shares after the IPO date. 

On the other hand, some retail investors may be subject to quiet periods. 

The quiet period prevents management teams or marketing agents from expressing opinions about the company’s value. 

If company insiders disclose such information, they can be under penalty of the law. 

Each post-IPO process is different depending on the company in question!