Guide to Initial Public Offering (IPO) Basics

Determine your capital needs

IPOs are best for firms that want to raise at least $5 million. Most smaller firms look to raise between $5 and $15 million.

I recommend: Use the business calculators at Dinkytown.com to help you assess how much capital you need to raise.

Establish growth potential

To be considered a good candidate for an IPO, start-ups and existing smaller businesses must demonstrate significant future growth potential — usually a minimum of 20 percent in earnings growth per year. Companies should be on target to reach a valuation of at least $100 million for a successful IPO.

I recommend: ForecastPro is a software program that can help you chart your growth potential.

Understand the costs

An IPO is one of the most costly and challenging methods of financing your operation. Expect to give up approximately 25 percent of your firm's equity and be prepared for fees and expenses to mount as high as 25 percent of the capital raised.

I recommend: IPOVitalSigns.com offers tips on how to evaluate and control the costs of going public.

Strengthen your management team

One of the main things underwriters look for is an experienced management team. Shore up your management team by hiring top-notch executives with a strong reputation in the industry.

I recommend: Post jobs at TheLadders.com, which specializes in helping companies find top talent.

Find an investment banker

Look for small investment banking firms that have experience managing IPOs of smaller businesses. Any firm you consider should be handling at least four IPOs per year.

I recommend: Check out IPOMonitor.com or IPO Central at Hoovers.com to find underwriters who are handling the IPOs of smaller companies.

Hire an accountant or attorney

Many investment banks won't even look at your business plan unless they have a personal relationship with your business or with someone representing your business, such as an accountant or attorney. Hire an accounting firm or an attorney with recent experience handling IPOs. This may help you get a referral.

I recommend: Search for accountants who specialize in SEC/securities at AccountantsWorld.com and search for securities attorneys at FindLaw.com.

Consider hiring a consulting firm

Navigating the complex issues surrounding an IPO can be difficult and time-consuming for busy business owners. Several consulting firms have emerged to help businesses develop and implement an IPO plan.

I recommend: Shop for IPO consulting firms, such as Nagle & Ferri, which provides complete pre- and post-IPO programs.

File a registration statement

You must file a registration statement with the SEC in order to make a public offering. There are two main parts to a registration statement: Part I must include descriptions of the business operations, financial condition and management; Part II is additional information. This vital form should read like a sales brochure.

I recommend: Smaller businesses can use one of two simplified registration forms Form SB-1 to raise up to $10 million or Form SB-2 to raise any amount.

Do a road show

Once your registration statement has been accepted, you and your management team must do a "road show". Basically, your team travels nationwide presenting your company to stock brokers who will sell it to their public investors.

I recommend: Sharpen your presentation skills by participating in training classes and seminars from the Leaders Institute.