Financing Issues that an Organization Faces When Going PublicAn Initial Public Offering (IPO), is extremely expensive for organizations. It is common for a small business to pay between $50,000 and $250,000 to organize and publicize an offering. According to Paul G. Joubert, author of The Portable MBA in Finance and Accounting, IPO claims between 15 and 20 percent of the proceeds of the sale of stock (IPO Forum, 2008). Some other costs associated with going public include lead underwriter's commission, expenses for legal and accounting services, printing costs and filing costs with the Securities and Exchange Commission (SEC). Organizations may have ongoing expenses for legal, accounting and filing services (IPO Forum, 2008).
Issues Impacting Dividend Policies and Constraints on Dividend PaymentsA firm must examine all financing and investment issues before determining the proper payout of dividends for their organization. Some organizations' opt to pay out smaller cash dividends to reserve earnings for future expansion. It is ideal for an organization to start with smaller payouts, and continue with conservative dividends per share. This payout decision is a result of the organization's capital budgeting decision.
Another option for payout of dividends is to finance a large portion of their capital expenditures. This will free up cash that the organization can pay out to shareholders. This payout decision is a result of the decision to borrow for the organization's growth (Brealey,