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Why getting the right finance team in place is essential after your IPO

Look at that new public company over there with its carefully chosen ticker symbol, brand-new source of capital and sense of relief among its senior leaders. They have finally achieved the milestone of going public that they worked months to reach. Take an even deeper look, however, and you’ll see that relief will be short-lived if they do not have a robust mix of talent and resources to handle the rocky transition ahead. They are setting themselves up for a stumble.

For companies that have just gone IPO, staying upright is “about efficient staffing and it’s also about the right staffing,” said Senior Consultant Diana Gilbert, who leads the Technical Accounting Group at RoseRyan.

During a recent RoseRyan-hosted seminar, co-sponsored with Fenwick & West LLP and BayBio, Gilbert laid out the big trouble spots between the first day a company’s stock gets traded and a year or two later when it can claim to be a bona fide, mature public entity. During this transitional period—a time that RoseRyan calls “Day 2”—the company has to adjust to a plethora of new rules, shrunken turnaround times and a stream of inquiries by investors and analysts who are watching every move and reading every 8-K. “You have a whole new audience you have to answer to,” Gilbert said. “You have quarterly filings. You have reporting deadlines. While 45 days to file may seem like a lot of time, when you back into it, it’s not a lot of time.”

There’s no going back now
Within that time crunch are layers of reviews that didn’t apply when the company was privately held. The audit committee, the company’s lawyers and auditors all get a say on what the finance team prepares. This will slow down the process and adds to pressure on finance to be even more buttoned up than before. The stakes are higher. “You can’t compromise the quality of what you’re doing,” Gilbert said. If you do, she noted, it could result in a restatement. As it is, about 31 percent of new public companies restated their financials between 2004 and 2012, according to Audit Analytics data. That is a woeful statistic.

To take on the higher load of compliance requirements, post-IPO companies should have access to technical accounting expertise, with people who are on top of the latest changes and leanings by standard-setters and regulators. And they need people who have actual public company experience. Most new companies do scale up in some way: Nearly 85% of CFOs surveyed by PwC said they hired one to five staffers after going IPO solely to meet the new reporting requirements. It is essential to have the right team in place.

Additional help is more than just handy to have—it can be a necessity in the eyes of the auditors. Even though companies that are considered “emerging growth companies” (those with less than $1 billion in revenue) do not need their auditors’ signoff on their internal controls over financial reporting just yet, auditors do want to know that management’s review is occurring. And they want evidence that it’s happening.

Fortunately, most companies wending their way through the early part of their post-IPO life have “relaxed” rules until they lose the ECG status, noted Dan Winnike, a partner at Fenwick & West. The longest a company can have these looser restrictions (including fewer compensation disclosures and no say-on-pay votes) is five years, but that could be shortened if it becomes a large accelerated filer or meets other criteria.

For companies going through the tough transition from getting public to being public, any break surely helps.

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Master these 6 things after your IPO and you’ll have a well-oiled public company

Talk about hype. There’s so much hoopla surrounding the decisions and details that go into the initial public offering and day of the offering itself. Just consider how much we all heard about Chinese e-commerce company Alibaba before its $25 billion IPO. But what about the day after, when the bankers and advisors have gone back to their offices and those hotly debated predictions about the first day of trading no longer matter?

That’s when the real work truly begins. The company has to keep that momentum of the IPO going and keep moving forward, moving on from the dotting of the I’s and crossing the T’s of the S-1 to carefully crafting the first rounds of quarterly and annual filings, proxy statements, the earnings releases, not to mention those first discussions with investors and analysts. These firsts will hone in on the fact that the discussions have shifted, the tone has changed, and the scrutiny is heightened for the new public company.

In a new RoseRyan intelligence report, Ensuring a smooth ride as a newly public company, technical accounting guru Kelley Wall outlines six key finance areas these post-IPO businesses need to conquer. These are the spots that can get overlooked in the rush to go public, without as much thought put into actually being a public company. Here are those actions these businesses should be taking during this transitional time:

  • Gathering the right resources: The financial-reporting workload has multiplied and so have the coordination efforts that make it all possible. “Even companies that had a rock-star finance team as a privately-held company need to scale up for public life so they don’t go flying over the handlebars,” Wall writes.
  • Having disclosure committee members who understand their contribution to the process: Unfortunately, we have seen firsthand committee members who are unsure of their roles and have a focus that is too narrow minded. The effective ones know to ask about information they may not be seeing in regulatory filings. They don’t just take a check-a-box approach to their reviews of SEC filings.
  • Ridding the SEC filings of red flags: Internal reviewers may miss questionable spots that would catch the attention of the SEC staff, which often looks not just at 10-Qs and 10-Ks but what is getting said on the company website, in analyst presentations, earnings releases, and, in particular, non-GAAP figures.
  • Ensuring the tight financial-reporting schedule has minimum risks: A big change for public companies is the turnaround times for reporting, and in the move toward efficiency, problematic areas can creep up. With more eyes watching what the company is doing, cutting out key processes and oversight may create a big risk for a restatement.
  • Meeting investor and analyst expectations: This is often new territory for many newly public CFOs. Executives who are speaking to the public will need to be evermore careful and thoughtful in what they say, and care should also be taken to limit surprises to the Street.
  • Making sure the finance team has an eye on outside happenings: There’s always a mix of proposed rules and regs that could affect companies greatly if they go into effect. They can have accounting implications and could lead to restatements if companies are not prepared.

New public companies face a whole new world that is watching their every move. To minimize any missteps, you have to know what they are. Download Ensuring a smooth ride as a newly public company to learn more.

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