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 guarantee business as usual during your IPO readiness process, there are some things a company can do to ease burdens and ensure a much smoother transition. We recently sat down with two 8020 veteran consultants who’ve both been active on the IPO front lines. Adam Fox and Brandon Li ask key questions, walk us through some IPO dos and don’ts, and offer suggestions for any company contemplating or already embarking upon the move from private to public.
The One Question You Should Always Ask Before Making Any IPO Move
Fox and Li don’t hesitate. Before making any move toward an IPO, they recommend that owners and senior management ask themselves one big question:
Are We Really Ready for This?
It’s OK if the “y’all ready for this” pre-game anthem gets stuck in your head because the question should be asked over and over again. 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, our consultants advise asking:
- 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 Apple iPhone, but you do need to feel confident that investors will gravitate toward what you are providing. Wishful thinking won’t serve you well here!
Can We Withstand the Added Scrutiny of an IPO?
Questions shouldn’t stop with product or service evaluation. Reporting requirements escalate dramatically during and after an IPO, and the added scrutiny can be jarring. Taking a company public really does leave you with no place to hide. Fox and Li also suggest asking:
- 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. As Li further explains, 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. Both consultants also emphasize the need to be transparent with trusted advisors during the process to ensure IPO success. Advisors can work in your best interests and solve problems only if you tell them what they need to know.
Do We Have Enough of the Right People in Place?
Fox and Li underscore that personnel issues can be make or break. 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,” says Fox.
Staffing for an IPO doesn’t just amount to adding more people, however. To keep your team motivated, Fox and Li encourage CEOs and CFOs to 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, according to our consultants. To share information and keep your team moving forward cohesively, Fox and Li recommend weekly meetings 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.
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?
Li suggests that 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 short-cuts 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,” says Fox!) Our consultants warn against a 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, they recommend allowing a year for planning and preparation, with 18-24 months a more realistic (and promising) time frame.
Don’t Neglect Your Day-to-Day Business!
The IPO process can be virtually all-consuming. Fox and Li caution CEOs and CFOs against 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 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, working as a company-auditor liaison, and serving 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 he or she 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.
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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 8020 Consultant Adam Fox
Adam has more than 25 years of finance, accounting, and operations experience primarily in start-up and middle market entertainment, media, and online companies. He started his career at Ernst & Young in New York City before moving to California. He has worked as Controller at Fox Family Channel and ArtistDirect, a company he assisted in taking public. In addition, he was Controller at Fandango, then Interim CFO. Adam was also the CFO at mOcean, an entertainment marketing and advertising agency, where he successfully consolidated office locations as part of an overall cost savings initiative before becoming a consultant. He holds a Bachelor of Science in business administration from American University in Washington, DC.
About 8020 Consultant Brandon Li
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 transactions, 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.