Posts

, , , , , , ,

The Ultimate Guide to IPOs

The decision to go IPO is one of the most exciting milestones in a company’s journey—and the start of an incredibly busy and challenging time. While the decision tends to center on the big event, the work leading up to the initial public offering and afterward is enormous and can strain an already busy team. For CFOs and other senior executives who need to lead their company through their initial public offering, here is a guide to going public.

A CFO Guide to IPOs: Don’t Underestimate the Work Involved 

Going IPO is complex and expensive—and time consuming. The prep work leading up to the IPO could take as long as two years. Smart companies build their infrastructure well in advance to be ready for the moment. Then there’s the constant scrutiny that becomes a way of life once the S-1 gets in the hands of analysts, investors and competitors.

You’ll need to be ready for the possibility that regulators will have a lot of questions, in addition to inquiries from savvy investors. Making the wrong move at any point could hurt the company’s growth potential and lead to employee burnout, just when you need your most valued performers the most. You’ll want to cover your bases before finalizing the decision to go public:

Make sure you’re doing it for the right reasons: Personal wealth buildup and boosts to the ego are side benefits to a successful IPO—but the focus should be on raising capital to fund the company’s growth plans.

Consider the alternatives: To explore whether going public makes the most sense for the business at this time, also weigh the pros and cons of other exit strategies, such as a merger or acquisition, strategic alliance, or private equity funding.

Picture the changes ahead: The company as you know it is going to change, as it moves from an organization run by just a few people to a company owned by anyone who wants to buy a piece. Investors will have a right to some decision-making power, and management will no longer have all the control. 

Preparing for Your IPO

Is your company IPO ready? Smart companies that have an IPO in their sights get their financial house in order early on. But you’ll need more than audited financial statements and an S-1 filing to be “ready.” Here are few of the many other steps you’ll need to cover:

  • Know your story: Consistency matters, from the prospectus to the words on your website to the narratives told by senior leaders as they promote the company at roadshows. Anticipate questions and have potential answers ready. How the company describes its talent, product roadmap, geographic expansion and goals, can highly influence share price. 
  • Act like the company is already public: By operating like a public company, as early as a year before the IPO, you can make improvements along the way, such as upgrading outdated systems, wiping out manual processes and overcoming the learning curve of SEC requirements.
  • Develop a SOX timeline: You’ll have until the second 10-K to submit your first Sarbanes-Oxley compliance report, but you’ll need a well-designed system of internal controls that will help prevent material misstatements to financial statements well before that time.

Managing Your Company Through the Post-IPO Transition

A culture shock is inevitable as the company takes on a more disciplined way of operating. Decision-making will be centered around short-term needs and results, rather than the long term. Employees need to be kept informed about the company’s direction in addition to the new expectations on behavior as they’ll have to follow to comply with insider trading rules and restrictions.

Decide how much of your old culture to retain, figure out how to manage the new one, and evaluate the staff to take note of any skill gaps. You’ll need people who are open-minded and willing to switch to new systems and processes, while being able to meet stricter deadlines and shorter turnaround times.

RoseRyan as Your IPO Guide 

As you can tell from this IPO guide, operating as a public company is like living in a whole other world. You need people who have taken companies through the entire IPO process who can help you make sense of it, and thrive in it. They’ll guide you through the before and after of the IPO, by keeping you informed about what to expect, preparing the company for this new world, and getting it through the rocky transitional period. And they’ll fill in the skills gaps and situate your staff with the new way of working. (We’ve also served as a US IPO guide for companies based outside the country that want to list here.)

With tight financial accounting and reporting, and a robust system with efficient, practical processes, the company will be set up for a maximum valuation and its new class of investors. Learn all about RoseRyan’s Transaction Advisory Services and how we can manage your IPO process from start to finish.

/by
, , , , , , , , ,

5 SOX Compliance Tips for Early Stage Startups

Sarbanes-Oxley compliance has come an incredibly long way since the corporate governance law was passed nearly two decades ago. That doesn’t mean startups are in a hurry to become SOX compliant. Still, for a high-growth startup that may one day go public, its SOX-like compliance efforts can give assurance to management and investors that the company’s financial reporting can be relied upon.

What makes SOX compliance more clearly beneficial, compared to the early days of the anti-fraud law, is the significant financial operational efficiencies that open up when companies assess and tighten up their internal controls over financial reporting. With the help of financial integrity experts, they can realize such efficiencies as they start understanding and documenting their internal controls.

As your early stage startup contemplates the future, including potential exit strategies, what would you need to do to become SOX compliant?

SOX Compliance for Startups

Tip 1. Firm up your financial foundation. Your emerging growth company’s venture into the public markets might seem far away. Strategic opportunities can unexpectedly arise, however, in the form of a SPAC (special purpose acquisition company) merger, accelerating your company’s need to be IPO ready or SOX ready. Despite whatever strategic plan is in the works, the financial foundation of your startup should be sound so that you have the level of financial information and analysis needed to confidently move the company in the right direction.

Have investments in technology kept up with the size and complexity of the company and where it’s headed? Are your accounting processes practical and leading to timely, credible financial reports that are auditable? Do you have access to the kind of strategic financial expertise required to help you move the startup forward?

Tip 2. Keep current on your key risks. As your startup quickly moves ahead, your risk management efforts need to be adjusted. Risks change as the markets change, as new employees are brought in, as the economy shifts, and as customer demographics evolve. A large part of SOX compliance involves understanding the current major risks facing the company, so risk management for IPO-headed startups is also important.

Tip 3. Seek expertise early and often. Whether your company needs a version of “SOX lite” right now, an idea of whether it’s headed in a smart direction in its growth journey, or simply some expert advice, you need the right expertise to help you. Amid fast growth and your assessment of your high growth startup compliance, you’ll likely find that you need more insights than you can find in-house.

You’ll need to connect with experts who will adjust their guidance to where your startup is right now and then will be there with relevant solutions as those needs change. Seek out a finance and accounting consulting firm that understands emerging growth companies like yours as well as the version of the company you hope it will become.

Do the consulting firm’s experts have experience in your industry, with companies like yours? And if they don’t, how can they meet your needs? Look for a consulting firm that tailors its solutions to their clients rather than trying to bend a company toward its solutions.

Tip 4. Be prepared to act like a public company. Does your team have the skills and resources to meet the ongoing financial reporting demands and SOX requirements of a newly public company? The deadlines are not flexible once your company goes public, and the scrutiny is higher. Pre-IPO companies can ease into meeting the higher expectations by truly understanding what it takes to act like a public company, including SOX 404 compliance and all that entails.

Some of the main internal controls that a public company is expected to adopt are simply best practices that every company should be doing, such as segregation of duties. Undertaking good habits as early as possible can minimize the risk of a material misstatement of the financial statements.

Tip 5. Communicate with your external auditors. Here’s a tip that not everyone intuitively realizes is a possibility: You can proactively check in with your external auditors to understand their expectations.

SOX experts can help you keep these communication lines open, while retaining independence between your startup and the auditors. This way you can understand what auditors want to know and minimize any back and forth that would require your attention. After all, you have so many other responsibilities besides SOX compliance for startups.

How Does Sarbanes-Oxley Affect My Startup?

You may be wondering, “How do I implement SOX in my high-growth startup?” The short answer is startups do not have to be SOX compliant until they are public. Depending on your current growth plans, however, you could find that your startup should work toward becoming SOX ready. To set the wheels in motion, reach out to SOX and financial integrity experts who can help guide your company through what you can and should do now, based on your current growth plans.

/by