Small- and medium-sized companies are urged to consider the increased compliance and labour costs that accompany a sharemarket before taking the plunge, with one accountant saying many SMEs underestimate the costs of running a listed company.
John Williams, managing director of the outsourcing accounting firm Lumina, says in addition to significant listing costs, the firm's research shows the difference in compliance costs between a listed and non-listed entity with the same turnover can be three or four times.
"A non-listed company turning over $20 million a year can expect to pay about $400,000 a year in compliance costs. For a listed company those costs rise to $1,400,000 a year – and that's probably being conservative," Williams says.
Williams also draws attention to "unforeseen legal and additional finance reports required by the ASX, as well as continuous disclosure obligations that occur when there is an anomaly or a change."
Further, SMEs should consider that a listing risks pulling an entrepreneur away from their strengths – growing a business – into a myriad of compliance issues.
Manoj Santiago, PwC partner, agrees that privately run businesses considering a stockmarket listing often mistakenly focus on direct costs such as listing fees, rather than the true cost that includes payment for the board of directors and a chief financial officer.
"The true cost of being a listed company is a substantial financial burden," Santiago says.
But he stresses that the increased financial and regulatory responsibilties do not cancel out the benefits of a listing, nor should they serve as a disincentive.
"You've got to throw it into the pot, and weigh it all up," he says, adding that planning and working with experienced people can minimise listing costs.
The comments follow a dismal year for listings, amid weak sharemarket sentiment and global economic turmoil.
The ASX advises companies looking to list to consider their:
- Long-term goals.
- Skill gaps at senior management board level.
- The greater disclosure, accountability and transparency requirements.
- Company culture.
- Tax issues.
- Retention of key employees and customers.
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