How the Stock Market can Transform a Business
by Arina Smith Investing 04 October 2018
The stock market is seen by many in the finance world as something for either retail traders with time and cash on their hands or institutional investors like pension funds. But it’s actually possible for businesses in other fields to make the most of the stock market too: from listing on such a market as part of an initial public offering to simply making an investment with any excess business cash, there are plenty of options.
The main way in which a private company can make the most of the stock market’s potential is to do what’s known as “float” on it. This simply means offering shares up for public purchase: rather than having stock held entirely by private shareholders, such as early investors or company founders, it’s instead sold on the open market in order to raise some cash. This cash can then be used for various purposes, including re-investment in the company or payouts to investors and owners.
The process is usually known as an IPO or an initial public offering. Firms tend to be quite large by the time they go to the market because buyers are less likely to opt for stock in a firm which hasn’t been able to prove itself and its potential for long-term, sustainable profitability. That doesn’t mean to say it can’t be done earlier in some circumstances, and IPO process lengths are actually getting shorter and shorter. Expert advisors exist to guide you through the IPO process, and it’s definitely worth making the most of their services.
Some companies aren’t interested in an IPO because they aren’t yet large enough for it to make sense, or giving up some power over the firm isn’t something that appeals. There are still options for those firms, however: if you have company cash sitting in the bank making little interest, you can choose to invest it in the stock market instead.
Retail investors who are also interested in taking this route should know that research is key here: taking into account market data using a stock feed is important, as is using an economic calendar to buy at a good time. But for a business, it’s vital to think twice about the best destination for that extra cash. Could it be used to set up a profitable new branch or service, for example, or could it pay for a high-salaried new hire who brings in more business? Investing in the stock market is definitely an option, but you need to satisfy yourself first that this is the best move to make.
The stock market is there for everybody, not just big-time investors or amateur armchair traders. Businesses, large or small, and from all sorts of industries can take part, and that’s a good thing. Provided you do your research before committing your firm’s cash, you can ensure that your investments have the best possible chance of working out.