It’s important to be prepared when your company is about to go public. It can be difficult to find sound advice about what to do as an employee during this transition from private to public. It’s also not a one-size-fits-all situation; the action plan can vary from company to company. However, there are several mistakes to avoid, no matter what. Continue reading for mistakes to avoid when your company goes public.
Not Putting a Plan In Place
If you have stock options as a benefit of employment at your company, there are several things to take into account before and after an IPO.
- See if your current exercising strategy still be a good option for you – Many things change when a company goes public. If you have incentive stock options, exercising them early could save you money on tax but could also end up giving you an expensive alternative minimum tax bill. Many private company employees need to pay cash to exercise their options when employees of public companies can exercise via a cashless option. Speaking with an experienced financial advisor can help you solve these problems.
- Evaluate your risk, goals, and opportunities prior to the IPO – You may want to take the opportunity of the IPO to reinvest profits into your personal finances, whether it’s putting more money into retirement or paying down your student loans. Depending on your risk, you need to consider the different options at hand. Put together a plan on what to do with this new situation.
- Know how you will be affected by taxes – Sometimes employees with stock options are too worried about the potential tax bill they could incur. Know how taxes work with different exercising strategies, sales, and withholdings but do know let that drive your decisions.
Don’t Have High Expectations for the IPO
Stock prices go up and down with the market; it’s just how it works. Newly public companies can be very volatile in the market. While many companies have been successful after an IPO, some are not so lucky. It is important to not get your hopes up or have high expectations for the IPO since there is a likelihood you’ll be let down. Paper profits only happen once the gains are realized when the stock is sold.
Don’t Spend Potential Proceeds
Unfortunately, not all IPOs are successful. After a company goes public, it can be nearly unpredictable how the market will react. If you expect a large influx of cash from your company’s IPO, don’t go on a shopping spree until you have the money in your accounts. You will also need to consider how you will be affected tax-wise from net gains.
Consult with an Informed and Knowledgeable Advisor
While you may know people in your personal life that are in the finance, tax, and accounting fields, the only way to get valuable and high-quality advice that can help you is through a good financial advisor. If you need help answering some of these difficult questions you have, Eagle Grove Advisors can help. Our advisors are well experienced in the tech industry and can assist you in making the best decisions you can. Give us a call today to get started.