How to know when you’re ready to list on the stock market

You don’t need to IPO to achieve rapid growth. Just ask Richard Branson.

Founders generally also want to keep their equity close, both for control and so they can enjoy as big a percentage of any value growth as possible. But for some businesses, floating on the stock market can be the ideal way to unlock the capital necessary to realise their ambitions.

How can you tell when you’re ready? It is not all about size. There are costs to listing shares – both initially and over time – that could make it prohibitive if you’re too small, but the whole point of a market like London’s AIM is to enable companies that are relatively small today to achieve scale. AIM shares are naturally more speculative, which is why HMRC accepts them as unquoted stock for tax purposes.

More important as a founder is that you’ve decided to float for the right reasons.

Entrepreneurs tend to try to finance their expansion from their own cash flow for as long as they can. When that’s no longer possible or growth isn’t happening quickly enough, they’ll consider debt. Many firms, particularly those with predictable revenues that can service the interest, will be able to borrow. But others will need to look elsewhere: to venture capital or private equity (especially more early stage enterprises), and to the public markets.

This process is usually self-selecting, and not all firms that reach this stage will be ready to list. If you’re considering an IPO, I would always suggest getting as much free advice as possible. Speak with a few corporate finance brokers about the valuation metrics of the business. They will volunteer a range to give you a ballpark, but more important is understanding the things a potential investor will care about that will improve that valuation.

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