Initial public offerings can be downright brutal. Very little will put a company under as much stress or cause as much disruption as the “all hands on deck” push toward an IPO. While we won’t go so far as to promise business as usual during the IPO process, there are some things a company can do to ease burdens and ensure a much smoother transition. Based on my experiences as IPO readiness consulting veteran on the IPO front lines, let’s explore key questions, walk through some IPO dos and don’ts, and cover items to consider when contemplating or already embarking upon the move from private to public.
The One Question You Should Always Ask Before Making Any IPO Move
Before making any move toward an IPO, owners and senior management should ask themselves one big question:
Are We Really Ready for This?
The decision to go public shouldn’t be an easy one. Instead, this is the time for serious corporate introspection. That means taking a long, hard look at your company and evaluating what you see as honestly and objectively as possible.
Will Our Product or Service Resonate with the Public?
Among other readiness questions, ask the following:
- Are we offering a growth product or service that can command the public’s attention, tap into the prevailing zeitgeist, or even act as a disruptor for some time to come?
- If we’re not offering a one-of-a-kind product or service, can we differentiate ourselves effectively enough to stand out within a competitive and noisy marketplace?
Your product or service doesn’t have to resonate with the public as dramatically as the iPhone, but you do need to feel confident that investors will gravitate toward what you are providing.
Can We Withstand the Added Scrutiny of an IPO?
Questions shouldn’t stop with product or service evaluation. Reporting requirements escalate dramatically during and post-IPO, and the added scrutiny can be jarring. Taking a company public really does leave you with no place to hide. Other questions to ask include:
- Are we adequately prepared for more rigorous and more frequent reporting requirements?
- Are our books in order, or are there too many loose ends and skeletons in the closet?
- Is our ERP system set up to see us successfully through the IPO process?
- Are our budgeting tools robust enough to deliver all that an IPO requires?
- Are all needed internal controls in place?
- Are our systems and tools integrated across entities, states, or countries?
During the IPO process, it’s not unusual to find that a company has not been altogether forthcoming with auditors in the past. Issues that once might have been swept under the rug may now loom large. Further, IPO preparation can dictate that a new “Big 4” auditor be brought into the mix. A good deal of step retracing may then be needed given that these auditors face added risks themselves when rendering an IPO-related opinion and prior audits are not typically accepted without question. It’s important to be transparent with trusted advisors during the process to ensure the IPO can succeed. Advisors can work in your best interests and solve problems only if you tell them what they need to know.
Want to learn more about how to drive a successful IPO? Read our blog post: “Three Ways IPO CFOs Can Drive Success.”
Do We Have Enough of the Right People in Place?
Personnel issues can make or break the process. The IPO process will have everyone from C-suite leaders to support staff firing on all cylinders, and it’s a good bet that additional team members will need to be brought on board. (Consider the insane amount of detail required by the S-1 alone.)
Staffing for an IPO doesn’t just amount to adding more people, however. To keep your team motivated, CEOs and CFOs should take good care of those up and down the line who are working long hours and going the extra mile. Bonuses, stock options, extra vacation time and recognition of hard work go a long way toward avoiding burn out, resentment and even breaking point resignations.
Good communication is also key to staff motivation. To share information and keep your team moving forward cohesively, weekly meetings can be beneficial for those directly involved in the IPO process. Staff members are going to be hit with numerous “we need this yesterday” directives, and it’s also important to communicate that these requests aren’t frivolous and need to be prioritized, even if not everyone knows the details of a pending IPO.
Want to explore how we can help? Visit our IPO Readiness & Public Company Support page.
A Final Set of IPO Readiness Questions
Most companies don’t want to go public if they have another viable option. Before launching the IPO process, it’s imperative to ask:
- Is an outright sale a better option for us than an IPO?
- Are we simply trying to cash out a few investors?
- Will an IPO be cost effective? Do we stand to gain more than the costs associated with going and staying public?
A dual-track process might be right for some companies, allowing them to start down the IPO track while still “shopping themselves around” for a private equity exit. Private equity offers will still be subject to due diligence, so time and effort won’t be wasted even if the work doesn’t result in an IPO.
How Long Does This Really Have to Take?
Some companies are tempted to push the time envelope and take shortcuts when it comes to IPO preparation. Others simply underestimate all that will be involved or forget to factor in unexpected and inevitable bumps in the road. (Think “government shutdown.”) Avoid any preparation window that isn’t long enough to put proper systems, tools and staff in place or that doesn’t allow for reporting clean-up and extended scrutiny by auditors operating under more rigorous mandates.
As a bare minimum, you should allow a year for planning and preparation. 18 – 24 months is a more realistic (and promising) time frame.
Don’t Neglect Your Day-to-Day Business!
The IPO process can be virtually all-consuming. CEOs and CFOs should be conscious of becoming so distracted that company management and development suffer over the long haul. If dedicated time for running the business isn’t established and maintained, the growth that made your IPO possible in the first place can easily start to sputter.
The Value of an Experienced, Objective IPO Consultant
You’ve painstakingly built your company through good times and bad, and you now have a vision for the future that can be intoxicating. Given this, are you the best person or team to answer readiness questions honestly and objectively? An outside, senior-level IPO readiness consulting expert may be just what you need to bring in a fresh perspective and clearly present options. In addition, consultants can help by acting as a CEO/CFO right hand, filling knowledge gaps, training in-house staff, adding technical accounting expertise, building new reporting models and working as a company-auditor liaison. They can also serve as what amounts to an IPO project manager, who can keep all departments on track, on time and working efficiently together. A talented consultant won’t relieve you of all IPO pressures, but s/he will ensure that you have the time you need to keep your business healthy and moving forward even as your IPO approaches.
Well Prepared. Well Run. Well Worth It.
Going public isn’t for the faint of heart. It entails both pre- and post-IPO costs and is labor intensive and time consuming. Without careful preparation and able stewardship, companies risk squandering financial and human resources in a failed IPO attempt. That said, an expertly managed IPO process can be as exhilarating as it is exhausting, heralding a new chapter in a company’s development and bringing the satisfaction of a tough job well done to all involved.
Is your company thinking about an IPO or getting bogged down by the process? Our IPO specialists would be happy to help. You can contact 8020 Consulting here, call us anytime at 855.367.8020, or click the button below to learn more about our services.
About the Author
Brandon is a finance and accounting specialist with more than 15 years of experience. His career started as an auditor with the “Big 4” assisting and leading audit engagements in a wide range of industries including consumer products, financial services, and biotechnology. He then went on to The Walt Disney Company’s Transaction Support team where he was responsible for providing expertise in M&A and due diligence, divestiture, technical accounting, and restructuring to Disney and all of its subsidiaries. After The Walt Disney Company, Brandon led year-end audits, month-end close, and financial reporting in the retail apparel industry at levels of Senior Manager and then Director. Brandon is a CPA and holds a Bachelor of Science in accounting with a minor in economics from the University of Massachusetts Amherst.