It was a lousy summer for entrepreneurs who had dreamed of taking their companies public in one of the hottest bull markets of the century -- Aug. 17, 1998, was the last day a company with $15 million or less in revenue went public. But the cool market for initial public offerings is no reason to be in a funk. Instead, it's an excellent time to take a hard look at the pros and cons of going public -- without such distractions as the spectacle of competitors raising money right and left.

Companies go public for an array of reasons: They need more cash to expand. They're concerned that bank mergers will cut off avenues for small-business financing. They want stock for an acquisition, or they want the prestige. From 1995 -- when the small-stock-dominated Nasdaq Composite Index really took off -- to mid-August, 1998, 713 companies with revenue under $15 million went public, according to CommScan, a research company in New York. But many entrepreneurs don't really know the burdens and potential pitfalls that go along with a stock listing -- bear markets being just one.

The reality is: Being public isn't a one-shot deal, it's a way of life. And it may not be right for your company -- or yourself. Here are some important points to consider before going down that road:

A first public stock offering, or IPO, is a major distraction for top executives at a small business. The CEO must find an underwriter, gather information for the offering prospectus, and lead the road show in which the company presents itself to potential investors. It's no small challenge to keep a fast-growing, lightly staffed business going while the boss is flying around the country, with all his or her attention taken by lawyers, bankers, and potential investors. "Companies that fail underestimate the time that senior management has to spend on the process: It can be 90 days of intense activity," Dennis Rourke, a managing director at San Francisco-based NationsBanc Montgomery Securities, said at a recent MIT Forum about going public.

Your company is no longer your personal fiefdom. Accounts and strategy aren't private matters between an entrepreneur and a few discreet investors. The U.S. Securities & Exchange Commission requires regular earnings reports, proxy statements, and shareholders' meetings. On top of that, public company executives must constantly answer investors' questions, explain unexpected developments, and listen to lots of unsolicited advice. It's no light responsibility. And surprising shareholders with bad news can open you to a class action.

As a public company executive, you'll have something new to worry about -- your stock price. It can be a distraction. It's also full of vital clues about your company's relationship to the financial world. Aziz Valliani, CEO of MobiNetix, a Sunnyvale (Calif.) maker of touch-screen terminals for customer transactions, saw his company's stock vault from 1½ to 8½ within a few weeks last spring. He suspected a leak about the impending earnings release and two nearly complete contracts. That raised the specter of a time-consuming and embarrassing SEC investigation into alleged insider trading. Valliani rushed out all the news. The stock settled back to about 4½.

Being a public company is expensive. The IPO involves the biggest one-time payment, largely for investment banking, accounting, and legal services. Sonics & Materials, a manufacturer of ultrasonic welding equipment in Newtown, Conn., reported $1.4 million of costs associated with its $5 million 1996 offering. But ongoing expenses for printing, mailing, and insurance are also sizable. For Sonics, which reported $12 million in revenue and a $396,469 loss (largely due to the relocation of its headquarters and a slowdown in its Asian business) in the year ended in June, the annual bill came to around $200,000.

If a new business contract is material to the company, certain sensitive data must appear in SEC documents. Last spring, MobiNetix published its contract to sell its devices to Federated Stores. Although the report excluded certain details, MobiNetix had to reveal such information as the number of units sold, total dollar amount, software in development, and warranties. And these "are pieces of information you don't want to have to disclose to competitors," Valliani says. His rivals are larger, so their contracts are rarely so important to the business that they have to be reported. MobiNetix did recently manage to report its first profitable quarter, but, says Valliani, the disclosure means the company is under enormous pressure to get its products out fast before competitors can take advantage of the information.

Of course, all of these obligations would be mere inconveniences if the stock price reflected the true value of the business, and if the public listing became an ongoing avenue for raising funds. Trouble is, in so many cases it does not. Tomorrow, we'll look at what happens when a company is public -- and its stock price just can't rally.

By Hilary Rosenberg in New York

To: FINANCE