What is Flotation Cost?

Flotation cost is the fees associated with the issuance of new securities. The exact cost incurred will depend on the amount of money raised, as well as the riskiness of the issuance. When a large amount of money is raised, the floatation cost as a percentage of the total raised is relatively small. The reverse is the case when only a small amount is raised. This is a one-time cost; once securities are issued, flotation costs are no longer incurred.

When deciding upon the amount of funding that must be raised, a business should include flotation costs, which are subtracted from the gross receipts total. This might lead them to attempt to raise additional funds to cover the flotation cost.