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View the finance work around the IPO as a marathon, not a sprint

Going public takes endurance. The whole process—from the decision to go IPO, to the S-1 filing and the roadshow, to the first day of trading and then the post-IPO phase—usually takes longer than expected and puts a major strain on resources. It takes mental strength and stamina to power through the several years before and after the transaction if you do it right.

It’s understandable why so many executives want to take a great big breath when they get past what they view as the finish line—the day the initial public offering is made. But they’ve got to keep going toward the next milestones and transition to truly operating as a public company, as noted by the experts who participated in RoseRyan’s recent webinar, “Smooth Sailing for a Successful IPO.” Senior Consultant Diana Gilbert, who leads the Technical Accounting Group at RoseRyan; Matthew Rossiter, Partner at Fenwick & West LLP; and Susan Berland, Consultant, Finance & Strategy offered up a lot of advice and warnings in the one-hour session aimed at companies contemplating or going public.

“Everybody’s excited, you rang the bell and you feel relieved,” Gilbert said. “You think, ‘Oh my gosh, this sprint, this crazy thing, is over.’ But the reality is you’re actually in a marathon. You’re not in a sprint. Now you’re in a public company.” There’s a lot more to be done.

The run to each milestone doesn’t have to be sweaty and messy. Companies can move forward in a cool and collected way (although, to be sure, there will be some bumps: Download our report The IPO Journey: 6 Potential Obstacles to Avoid for a Smoother Trip to see what we mean) with some best practices tucked into their back pocket.

Here are just a few takeaways from the webinar:

Start early. Decisions can be made in the very early days of the company’s existence that can set everyone up for an eventual IPO. This means nurturing the kind of culture that highly values accurate information and keeps documentation in order. If certain systems are in place and certain ways of doing things are the way of company life early on, that will make the transition easier if an IPO does indeed become part of the company’s plan.

Instill smart habits. Before going public, finance teams should adjust to tighter reporting turnaround times. They can work out the kinks before meeting deadlines becomes an SEC mandate. They’ll need to streamline the close process and begin getting used to recording the work that they do—not just the results.

“Remember a lot of private companies now going public don’t have people who have been through the Sarbanes-Oxley process,” Gilbert said. “They’re not in the habit of documenting everything they do, so while they may be doing it, there’s no evidence of it.”

Know the timeline. Because of the JOBS Act, many companies get some breathing room when it comes to adjusting to all the regulations they’ll be subject to once they get over the first going-public hurdle (most notably, the requirement that auditors attest to management’s review of internal controls, aka SOX’s Section 404(b)).

“Essentially all high-growth IPO companies right now are ‘emerging growth companies,’” Rossiter said. “Any private company with less than $1 annual billion in revenue will be eligible to be an emerging growth company, and will remain an emerging growth company until the fiscal year ending the fifth year after IPO, or potentially sooner when one of several financial triggers hit,” such as the company becoming a large accelerated filer, with public float of more than $700 million.

Anticipate problems. There will be mistakes along the way as the company ramps up to go-public status, and that’s why building in time is essential. “I usually say it’s not whether the company is going to fail on some controls, it’s which ones,” Gilbert noted. “We need time to remediate and fix it and get things running really sleek and clean before you hit that period where you need to be compliant for 404, before you get the auditors involved.”

Want another great tip? Develop a solid finance team with buttoned-up processes and a drive for efficiency and integrity throughout the going-public process and afterward. It’s evermore important when the company has passed the IPO mark and is in the public eye.

“You want to have a solid, solid team in place and make sure that in the process of all of this you are doing things in a disciplined, careful way,” Gilbert said. “That you don’t take shortcuts and you get it right the first time. Because when you are communicating with the outside world, they are not very forgiving if you make a mistake and have to go back and make a restatement. That can be a big negative on your credibility.”

For more sage advice on crafting your successful IPO process, listen to the recorded webinar Smooth Sailing for a Successful IPO.

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On the road to IPO? 6 obstacles to avoid at all costs

All eyes are on you when your company goes IPO. Everyone, it seems, wants to know the company’s every move—its past results, its risks, its future projections. Working at a newly public company can make employees feel like they’re in a giant fish bowl with everyone swimming around and crashing into each other. Unless, that is, the company planned ahead for a bit of mayhem.

A new intelligence report written by RoseRyan CEO Kathy Ryan warns top executives of pre-IPO companies about six potential pitfalls that await them on the multi-year journey they’re about to undertake. These are obstacles along the IPO path that can easily sink a deal.

By being more aware of the potential problem areas, companies have a better chance at a better ride (it’ll be bumpy no matter what—as anyone who has suffered through the aftershocks of an IPO can tell you). They’re also likelier to achieve a tighter corporate culture on the other side, a reduced risk of public mistakes (like a messy restatement), and a realistic, satisfactory share price.

Kathy emphasizes in the new report, The IPO journey: 6 potential obstacles to avoid for a smooth trip, that going public is much different that actually being a public company. To do it right, companies should view the entire deal as having three phases—the IPO prep, the IPO process itself, and the IPO hangover of suddenly being public. Along the way they should stay away from the following missteps:

Avoiding the tough questions: Kathy reveals the hard questions that need to be asked, including whether the company is moving forward with the transaction for the right reasons.

Skipping the prep work: There are years of laying foundations before the journey gets into the S-1 frenzy, from getting the financial house in order to figuring out the key metrics that will be shared and how they will be expressed publicly.

Being unprepared for a big culture shock: Senior executives rarely consider the transformation employees are expected to go through as the company changes from an entrepreneurial mindset to the more disciplined, accountable organization of a publicly traded company beholden to new regulations. The culture can—and should be—managed during the IPO process.

Lacking the right talent at the right time: Just as the culture should be evaluated, so should the skills. To what extent can existing employees be trained to withstand the needs of a public company, and to what extent does the company need to look outside to fill in the skills gap? It’s better to wonder this as the company goes along—rather than risk overloading employees more than they need to be.

Being in denial about the IPO hangover: There is a hard truth about going IPO and it’s what happens on “Day 2,” the day after the IPO, when the company starts operating in a whole new world, and the next few years that follow. It is a tsunami of work. It takes awhile for everyone to adjust, for efficiencies to take hold and new processes to become routine.

Not actively managing the share price: Many executives think they cannot influence how investors perceive and thus value their company. But it is possible, with effective messaging by company leaders, who need to put themselves in investors’ shoes and hone their storytelling skills to speak their language.

Preempt the mishaps. Prepare the troops. And get ready for the exciting trip that lies ahead. Download The IPO journey: 6 potential obstacles to avoid for a smooth trip.

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Can you handle the IPO tsunami?

Executives who take on an IPO ride a long and sometimes unpredictable wave from start to finish. There’s all the debate over whether going public is part of the company’s grand plan, when to make the move, how the business will be valued, and then—the part that most people overlook—the arduous journey after the Wall Street debut.

Is your company able to take on the ups and downs of going public and then actually being a public company?

A lot of senior leaders are asking that question—or should be—in our region. It’s an especially hot time for life sciences companies on the IPO track in the Bay Area. The industry is riding a “three-year wave of renewed Wall Street interest,” and a relatively high number intend to go public soon. Fast-track tech companies and the $1 billion “unicorns” topping the news are adding to the talk about an active market.

From the moment the company decides to forge ahead with going public through the year or two after the actual offering, there are lot of adjustments and transitions in store. What’s the difference between companies that achieve success and those that falter (from embarrassing restatements and miscommunications with investors)? It’s all in the preparation, it seems.

By getting some essentials done early on, companies can navigate the choppy waters that come with taking on such a huge transaction—and the onslaught of new work and expansive demands that come with it. In that multi-year period before and after going public, most companies face a whirlwind of change and a supercharged environment of employees learning new ropes, processes and systems, and everyone is having to dealing with a higher level of scrutiny. There’s a new mindset required and a whole slew of financial and legal requirements to handle.

Companies that are facing an IPO should be prepared to:

• Get their financial house in order if they haven’t already.

• Ready their financial accounting and reporting for maximum valuation and for a new class of investors.

• Review the finance team’s skills sets and consider what new skills should be brought in to the fold, and when. You need someone who has been there, done that.

• Accept that “being” a public company is different than going public, and that in some ways, the real work begins after the actual IPO.

An IPO is a pivotal moment in a company’s lifecycle, and it helps to be as prepared as possible. It can also be a bumpy ride unless you have a navigational guide.

Don’t miss our one-hour online webinar on August 6 to dig into this meaty topic. Senior Consultant Diana Gilbert, who leads the Technical Accounting Group at RoseRyan, will be joined by Matthew Rossiter, Partner at Fenwick & West LLP, and Susan Berland, Consultant, Finance & Strategy, as they lay out the course for IPO-bound companies in “Smooth Sailing for a Successful IPO” at 1 p.m. PST. To register for this webinar for companies contemplating or going public, visit our registration page: http://bitly.com/ipoaug6.

Want even more? Get RoseRyan’s series of reports for IPO-bound companies: IPO in Your Future?, Ensuring a Smooth Ride as a Newly Public Company, and The IPO Journey: 6 Potential Obstacles to Avoid for a Smooth Trip.

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Full steam ahead for 2015 and beyond

Halfway through the decade, with the Great Recession slipping farther and farther into the rearview mirror, corporate leaders are pushing onward and upward. Nowhere is this more evident than in the San Francisco Bay Area where a lot of attention has shone on activities within the tech and life science sectors. In business, there is never enough time to waste and anyone who lingers at a standstill for too long will get left behind.

In the Bay Area, we’ve seen a higher eagerness for forward movement over the past year as well as more forward-thinking actions. Small companies that had held a tight grip on lean finance teams are expanding. Larger companies are soul searching and making positive strategic changes. And to top it off, the IPO market is incredibly active (2014 saw the highest number of companies going public since 2000, according to Renaissance Capital).

We are not quite returning to a heyday and I don’t think we’re in a bubble, but it’s much easier to find bright spots than when this decade first began. As for RoseRyan, we are enjoying much forward momentum too, having made investments even during the turbulent times. The outlook for RoseRyan is a positive one for the year ahead as we continue to see opportunities for growth within our own client base as well as with potential clients.

A memorable year
One of our proudest moments in 2014 was the introduction of our RoseRyan Day 2 service, created for companies struggling to get everything done properly after their IPO. The early days of working at a publicly listed company is an exciting time, but it’s also a shaky time, as the organization has to adjust to new processes, new requirements and the constant prying eyes of investors and regulators. They need to be more careful and watch out for inconsistencies in the information they share and how they share it. This puts the onus on the finance department.

We enjoy helping finance teams power through the challenges of what we call “Day 2,” that one- to two-year stretch of time between the IPO and and when the company is actually comfortable acting like a public company. There is a lot to do.

Some companies are taking on a transition of another sort altogether, as they look under the hood and consider whether something within their infrastructure is holding them back. We expect the trend of spinoffs and splits to continue following on the heels of big changes at Hewlett-Packard, eBay (which is spinning off PayPal) and Symantec. When done with great care, such divestitures can position a business for greater mobility, innovation and growth.

Another signifier of an increased focus on the future — rather than a stuck-in-the-mud feeling wrought by the recession — shows up in the job market. People are more confident about switching jobs, and there are more opportunities for them to make the change. This development is a good sign for our local economy (as well as for our own interim finance services pipeline), but it does make the life of hiring managers more difficult. In the finance and accounting world in particular, we continue to face a tight market and we all need to rethink how we attract and keep top talent. It’s certainly a job seekers’ market out there.

At RoseRyan, our standards for seasoned finance pros continue to remain high, and we have the kind of reputation that continues to attract the talent we need. In the fall, I was honored to be recognized as one of 10 elite managing partners from around the country by Accounting Today for having the kind of “employee-friendly firm that so many leaders are struggling to build now that engaged, enthusiastic staff are at a premium.”

Over 20 years, we have set up a culture of fun-loving folks who have a passion for what they do and the means to collaborate and learn from each other. And we do it without the round-the-clock pressure that some larger firms run on. Our work shines because of our experience and our enthusiasm, and I share my inclusion on the Accounting Today Managing Partner Elite list with my RoseRyan colleagues.

Successful businesses will persevere by keeping their focus on the future, rather than lamenting on what they see in that rearview mirror. We have our eyes on the future. Will you be joining us?

Kathy Ryan is the CEO and CFO of RoseRyan. Since co-founding the firm in 1993, she has served as interim CFO at more than 50 companies.

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