Staying Private Is Worth the Risk

Selling pencil erasers that look like celebrities is the product that our small, privately owned company has been producing for the last five years. Lately, our company has done very well. Sales have been skyrocketing. We continue to hire new employees and purchase new machines. We have come to realize that our existing plant is not big enough for this growth, so we have decided to build a new plant. However, we do not have the money to finance the expansion at this time. We have three options; first is to stay private and look for potential investors, second is to go public by issuing stock, last is to go into a partnership. We have spent the last few months researching all of these options, and we have come to the conclusion that our best option is to stay private.

We believe the advantages of staying private outweigh the disadvantages to our small firm. The first advantage is that management could maintain decision-making control. Since we are a small, young business that formed when a few friends came together with a new idea, we are not yet ready to let go of our leadership and control. Second, staying private allows us to maintain better quality control over the product. Our erasers are known for their quality. When people buy our erasers, they know that they are getting what they paid for, and not a cheaply made product. Also, staying private allows us to remain small until we have the opportunity to analyze the future demand for our product. We want to fully understand this demand before we make any significant changes to our business. Finally, remaining private, allows the firm to keep its corporate culture. It is more like a family instead of a corporation with strict guidelines and little flexibility. All of our employees feel ownership in how and what we do. We fully understand that remaining private involves a lot of risks, but we also know it can offer much greater returns.

Even though we believe that remaining private has tremendous advantages to our business, we also realize that it has some risks. The cost of borrowing money will be higher. Interest rates are low now so we are hoping that the difference between private and public borrowing will not be too great. We also understand that if we want to find private funding, we may have to pay a firm to help us locate potential investors, adding to our borrowing costs. Staying private may also make expansion more difficult. By taking the firm public, it would make expanding later much easier and faster, but we run the risk of over production or a decline in sales. For this reason, we decided not to expand too quickly, and will take the risk. Maintaining our decision making abilities, keeping a high degree of quality control, and preserving our corporate culture, will help us continue the success that our business has achieved over the last five years.