Go public ... stay public? What to consider before taking the plunge or exiting the pool.(extra credit)(Interview)

It's a question that many growth companies find themselves debating again and again: Should we take the company public?

Since 2002, additional layers of compliance and expenses are leading many companies to stay private and some public companies to head back to the relatively safer, slower-paced and more economical waters of private ownership. "Sarbanes-Oxley (SOX) compliance and the increased capital available in the private sector have presented critical factors for today's companies to consider, relative to either going public or going private," says Darrell C. Smith, managing partner for Shumaker, Loop & Kendrick LLP's Tampa office. "The difference between being a profitable company and a nonprofitable company could come down to the significant costs associated with continuing as a public entity."

Smart Business spoke with Smith about the risks and benefits of taking a company public, and what factors are driving some companies back to private ownership.

Why Should a Company Consider Going Public or Staying Public?

The No. 1 reason for going public is that it can be a good source for less expensive capital to quickly grow a company. Additionally, it can create greater visibility and enhanced corporate reputation. Owners, investors and employees can benefit by owning shares with a ready public market to liquidate them. Finally, it's easier for a public company to establish its valuation.

What Benchmarks Indicate It May Be Time to Go Public?

IPOs offer a unique ability to obtain significant capital at a lower cost with fewer restrictions compared to traditional loans and private equity, but only if the company has a solid track record of profitability and high gross margins within a healthy market sector. Additionally, the company should have significant growth opportunities available to it, strong management and infrastructure and a need for substantial funding to grow the business. It's critical to understand that going public doesn't suddenly add value to a company. It can actually reduce the company's value because of the increased expenses.