By Pat Voll
Many, many companies are making big moves. And they’re keeping our finance consulting firm busy—we’ve recently helped a number of clients as they’ve headed toward the IPO market: foreign companies wanting to list on the U.S. exchanges, as well as domestic companies looking to capture higher valuations on their own or getting courted by a SPAC.
Besides the level of activity keeping firms like ours, investors and analysts busy, it’s adding to the workloads and stress levels of corporate accounting departments too. Particularly for SPAC deals (involving special purpose acquisition companies), which move incredibly quickly, finance teams often get surprised by the nature and timing of these events, and they end up scrambling. That can put the transaction at risk, and exhaust everyone involved.
Here’s some quick advice to anyone, whether you’re heading a finance team or a key part of it, on assessing and preparing your organization for the potential changes ahead.
Exit Strategy Trends: Busy, Busy, Busy
In recent months, going public or merging with a SPAC have been popular exit strategies. So far this year, about 300 SPACs have raised over $97 billion in initial public offerings. That’s $10 billion more than 2020, which had set a SPAC/public offering activity record. While traditional IPOs are getting outnumbered by SPAC deals, they are seeing high valuations, especially in tech. Data warehouse company Snowflake, for example, scored the largest IPO for a software company by raising nearly $3.4 billion in the fall. Adding to the flurry of activity is foreign interest, as companies from Japan, China, Germany and other countries have brought their stock to the U.S. recently.
Be Prepared: Practical Steps to Take Before an Exit Event
Always be ready. It’s common for a management team or board to work toward an exit strategy but hold their cards close to the vest until an actual transaction is on the table. In some cases, an interested party reaches out and makes an inquiry when the company wasn’t even thinking of an exit. Both of these scenarios would stress out any accounting organization—once you become aware a change is coming, you enter a race against time. Nobody wants to be the reason your company missed its window or its valuation took a hit. You can take some incremental steps now that will save you heartache later—and increase your odds of a successful exit.
Get informed. Start with making an honest assessment of where you are today, and where you need to be as a public company. To understand where you need to be as a public company, stock up on information about the requirements involved. Being a public company involves a lot more than just filing quarterly SEC reports (although that’s a big one).
For one thing, do you have fully GAAP-based financial records, or are you recording your entries on some other basis? For example, have you implemented ASC 606 (Revenue) and ASC 842 (Leases), or have you put those accounting rules off? Are you recording stock-based compensation? Do you have clean quarterly cut-offs?
Has your company had a financial statement audit yet? Were you able to provide all the information your auditors requested on a timely basis, or did this process drag on month after month? What about audit adjustments—were there many? Were they significant? Did your auditors provide any recommendations for improvement?
Build a roadmap to address your gaps. Once you have an idea of the gaps you need to address, prioritize them and build a roadmap to address each one. What would it take to bridge each finance and accounting gap—is it a skill or a problem that you can address by outsourcing, or is it something that you’d want in-house? How challenging is it to find that level of talent in today’s market, and what is the current market rate for that talent? Build out your plan with a realistic understanding of the timeline and the costs involved—tackle what you can afford to take on. If you get surprised by a potential transaction, you will already have your plan in place for long-term success, although you will need to make some adjustments to accommodate the accelerated timeline.
You may not have any idea what skills you’ll need and how or when to bring them in. Let’s say you’re the controller but you have not held this role at a public company. Understandably, it’s challenging to figure out these answers, especially if no one around you has much or any public company experience either. We sometimes see clients who think they’re ready for a particular aspect of public-company life, but the level of documentation and rigor around how they are approaching things won’t cut it.
Corporate Exits: How Do You Know If You’re on the Right Path?
You may be wondering, what is a readiness assessment? You can start one on your own, but it’s hard to do an objective, thorough exit readiness assessment—ideally you can ask a third party to help you assess the lay of the land. It’s best to have a clear picture of the work that needs to be done rather than to find out late in the process. Start with your audit team—get their input on how ready you are to be a public company. They see the end result of your financial statements and how you and your team respond to their audit inquiries. They might not see the heroic effort this takes, and you have to assess that part—is meeting the financial reporting requirements and auditing expectations something you can sustain on a quarterly basis with your existing team? What happens when you layer in the new requirements of being a public company, such as SEC reporting and SOX? You can also bring in an advisory firm, such as RoseRyan, to take a look and help you with the assessment.
We have put together some resources to help you as well—you can read our playbook for a successful exit and read some client case studies on how they leveraged our support.
Smart companies are prepared for the unexpected. By starting early, identifying your roadmap and making steady progress toward your goal, you put yourself in the driver’s seat. We are happy to help navigate your journey with you.
Pat Voll is a vice president at RoseRyan, where she provides strategic guidance into several practice areas, including corporate governance, strategic projects and operational accounting. She also manages multiple client relationships, develops new solutions for the firm and oversees strategic and corporate culture programs. Pat previously held senior finance level positions at public companies and worked as an auditor with a Big 4 firm.
Implementing ASC 842 Lease Accounting
Photo by Alice Pasqual on Unsplash
Companies have had over five years to process the new lease accounting standard, ASC 842, since the Financial Accounting Standards Board issued it in 2016. Public companies have implemented ASC 842, but for some private companies, the effective date has still not come to pass. With the deadline finally (and rapidly) approaching for private companies that haven’t yet adopted ASC 842, here is the latest on the new lease accounting standard, including the changes created by ASC 842.
What Are the ASC 842 Changes?
Under the new lease accounting standard, companies are expected to bring right-of-use assets and associated obligations onto the balance sheet, and out of the footnotes. By putting their operating leases onto their balance sheets, many companies will appear to be more leveraged than they were under historical GAAP. From FASB’s point of view, these changes will provide a clearer picture of companies’ leasing activities.
A common new lease accounting example has often centered around the leasing of airplanes. Before the lease accounting standard, ASC 842, a multi-year lease did not appear as an ongoing obligation on the balance sheet for an airline—this was an accepted accounting treatment that some viewed as providing a misleading picture.
When Are the New Lease Accounting Rules Effective?
Like the new revenue recognition standard (ASC 606), the effective date was moved last year for the new lease accounting standard. Public companies began following ASC 842 for fiscal years beginning after December 15, 2018, while privately held companies, with some exceptions, are expected to have implemented ASC 842 for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted.
Citing the pandemic and its predicted economic impacts in June 2020, FASB delayed, by one year, the effective dates of the new ASC 842 lease accounting standard for private companies and nonprofits that hadn’t yet gone through the process of implementing the rules. The delay was recognition that the implementation process can be an enormous one for most companies even during a “normal” year: Public companies that implemented ASC 842 had quickly realized that simply gathering the information needed throughout their organizations was enormously time-consuming, on top of the analysis required to decide on the appropriate accounting treatment.
Adoption of the Lease Accounting Standard, ASC 842
While procrastinators may have been rewarded with extra time through the most recent delay in the new lease accounting standard, there is no reason to assume that any other delay will be forthcoming.
Companies that have implemented the rule caught on pretty quickly that, like the revenue recognition standard, the leasing standard tends to be more involved than first expected, particularly for companies that have a decentralized leasing process (or no process at all). Earlier adopters were surprised by embedded leases in service contracts in addition to the work involved in scoping out those leases to understand the services being provided and the assets under use.
Knowing the extensive work involved, for efficiency’s sake, it’s advisable to form a project team and to involve multiple organizations as the company gets a handle on the many agreements and whether they need to be reclassified under the new rule. This effort should include any international agreements, too, so be sure to build in time for English translations if necessary.
You may be surprised by some deals that were informally made that would fall under this guidance. Then you’ll have to decide whether each agreement is in fact a lease or would be considered an agreement for buying or selling goods or services (and thus not subject to the rule).
Implementing ASC 842 Lease Accounting the Right Way
Adoption of the new lease accounting rule goes beyond changing where you report your leases. For some companies, it’s an ongoing effort that’s leading them to change how future deals are structured, and that may require some education on the finance team’s part to help, say, the operations group understand the effects of a big accounting change.
Indeed, before you even reach the effective date of the lease accounting standard, you may want to revisit some of the wording used in leasing contracts. Some debt covenants may be affected once the accounting standard is adopted, but you could get ahead of that by putting the work in now. Also remember to factor in the auditor scrutiny that will be ahead of you.
To ensure you are covering the many details, and doing so as efficiently as possible, technical accounting expertise can get your team through it. Accounting experts armed with lessons learned, best practices, and insights around the new lease accounting standard that can be tailored to your company can help you get through the implementation process.
M&A Strategy and Value Drivers: Tips for a Successful Deal, Before and After the Close
By Pat Voll
SPAC acquisitions are taking up a lot of attention, but they’re not the only deals getting made. Virtual handshakes are also happening in multitudes for traditional mergers and acquisitions. Despite concerns that the M&A deal pipeline would dry up when the pandemic struck a year ago—which did lead to a Q2 dip—2021 acquisitions are at an all-time high so far. A record $1.77 trillion worth of M&A deals occurred worldwide during the first four months of the year. While some of those transactions involved special purpose acquisition companies, technology and private equity backed deals have been notably active, too.
If your company will be jumping into the M&A fray anytime soon, you’ll want to pay careful attention not only as you seek out potential targets but also to how you can maximize value of the deal—including as you integrate the new organization into yours.
What’s Driving M&A Activity?
PE firms and corporate investors have money to invest. We’re also seeing the effect of companies’ shift toward a longer term strategy after a period of laser-focusing on the short term amid the initial uncertainty surrounding the pandemic’s impacts. Now, companies are looking out further, and adopting a strategy for mergers and acquisitions that’s based on these drivers:
We see this in pharmaceuticals, where new drug development requires high early-stage investment for low probability success. By the time things progress to late stage clinical trials, the landscape has shifted and the probability of success has increased, but so has the required capital to fund the large trials. This can make for a great pairing of smaller drug discovery companies partnering with larger pharma companies.
Taking the M&A Strategy Beyond the Deal Close
Regardless of the primary motivation behind a deal, every M&A strategy should include clarity on the value drivers and how your company can maximize that value. And then it is equally important to take a focused approach to integration, ensuring you derive the value you are betting on. To do this:
Set up a cross-functional integration success team before the deal closes. You’ll need executive participation on this team, and the execs should be aligned around the underlying reasons for the deal and the value you anticipate creating.
Understand how each function contributes to the success of the deal, and how the functions are dependent on each other. For example, the innovation and planned revenue growth may be highly dependent on the cost savings realized from synergies in order to fund that growth. By having defined, documented and communicated the primary sources of value, key risks and assumptions, as well as priorities for integration, you can stay focused on the success of the deal and maximizing the value derived. Incorporate key drivers and expected outcomes into operating budgets and hold those involved accountable.
Don’t overlook the role of culture in the success of an acquisition. Take the time to understand the target company’s culture during the diligence process, and assess how it aligns with yours. Incorporate cultural alignment in your integration plan and then actively managing it. Talent acquisition is a big piece of the value driver, and to be successful, you’ll need to retain your newly acquired workforce. Unfortunately, we’ve seen this go horribly wrong—either the newly acquired team doesn’t understand how they fit into the new parent company, or the parent company culture is missing some key elements of the old culture that allowed that team to be innovative and successful.
We often see this mismatch when a very mature, established company acquires an entrepreneurial startup. The startup team doesn’t know how to operate within the constructs of the parent company infrastructure, and the parent company doesn’t provide flexibility to allow the innovation to flourish. We’ve also seen the flip side, when the parent company talent doesn’t understand how their roles will change. Either of those scenarios can result in regrettable turnover. And you won’t realize the hoped for value.
The M&A Process and Achieving Post-Deal Success
Integrating operations takes up a lot of time and energy. Be careful not to stretch your team too thin, or you run the risk that nobody will be focused on your core business, and you’ll lose ground. The longer it takes to complete the integration, the greater the risk that your customers may be getting mixed messages—you can bet your competitors will take advantage of any confusion in the market. Lean on an expert team that’s been there, done that to help you maximize your investment.
Learn the valuable takeaways a global public company gleaned after asking RoseRyan to take a look back at a strategic acquisition. See our case study: Checking the Compass on the M&A Trail.
Looking for lessons learned post transaction or before taking on your next transaction? RoseRyan’s strategic advisory experts can help.
Pat Voll is a vice president at RoseRyan, where she guides and develops new solutions for our strategic advisory practice, which includes corporate governance, strategic projects and operational accounting. She also manages multiple client relationships and oversees strategic initiatives for the firm. Pat previously held senior finance level positions at public companies and worked as an auditor with a Big 4 firm.
Corporate Governance Structure
When a fast-growing company seeks outsourced accounting and finance help to bring order to the chaos, they are often in an envious position: They are growing so fast that they have not had a chance, or the resources, to establish the order and corporate governance structure necessary for ensuring the reliability of their financial statements, keeping inefficiencies at bay and preparing the company for a major strategic transaction that could be on the horizon, such as an initial public offering (IPO).
What Is Meant by Private Company Corporate Governance Structure
How does the company conduct itself and how is it governed? This may be one of the top questions an investor asks when looking at a company. Depending on the private company’s corporate governance structure, someone can determine whether to view a company’s financial information as credible or not.
Corporate governance received heightened attention post-Enron as the Sarbanes-Oxley Act took shape and required that publicly traded companies strengthen their corporate governance structure and corporate governance hierarchy. In addition to companies having to strengthen their internal controls over financial reporting—and subject their internal controls to auditor testing and reviews—companies also needed to revisit how their audit committees were set up. Audit committees gained more responsibilities in the process, and U.S. stock exchanges require that companies have audit committees that are independent of management.
Corporate Governance Structure Examples
In the simplest of definitions, the rules a company follows and how it operates fall under the term corporate governance. In some views, corporate governance would apply to the board of directors, the audit committee, and how the company is organized. Who has the ultimate oversight authority? And are there special lines drawn to ensure objectivity and independence between certain roles and responsibilities? For instance, many companies have the internal audit function ultimately reporting to the audit committee, rather than management. However, most internal audit departments report administratively (rather than functionally) to the CFO, a setup that is frequently criticized by the Institute of Internal Auditors.
While U.S. companies are subject to the same rules and regulations, depending on their industry and whether they have publicly traded stock or not, companies have their own ways of doing things and their own rules and processes that have formed over time. Some of these processes become unwieldy and new efficiencies need to be introduced to make them more manageable and able to be followed. In other cases, less mature, pre-IPO companies do not always have the processes necessary to ensure proper internal controls, and the veracity of their financial information could come into question.
What Are the Main Pillars of Corporate Governance Structure?
The main pillars of corporate governance include transparency, accountability, assurance, leadership, communication and culture. As fast-growing companies prepare to go public or to appear attractive to a potential acquirer, they will need to assess and strengthen their processes to achieve financial reporting that can be relied upon. Their ability to achieve credibility in the marketplace and to meet compliance requirements expected of more mature, public companies stem from the corporate governance structure.
All of these areas have an effect on a company’s ability to be forthcoming with reliable information, on an ongoing basis. When these pillars are strong, the company’s stakeholders—including the board of directors, employees, and shareholders—can have trust in what the company is telling them. Companies with what would be considered a weak corporate governance structure have a higher risk of material misstatements.
What Does Corporate Governance Structure Involve?
The rules and processes that a company follows, and the way it is managed and organized, have a direct effect on how managers and employees behave and can influence a company’s internal controls over financial reporting.
An objective, expert perspective from SOX pros such as those at RoseRyan can help a company better understand its key internal controls and develop a tailored Sarbanes-Oxley program that is based on the way the company operates and that can be easy for the company to maintain over time.
After all, every company is different. The corporate governance structure of one company is not going to be the best fit for another company. To gain a sense of what a company is missing, how its processes and corporate governance structure could be improved, along with insights from the field and best practices, turn to corporate governance experts who can help you raise the financial integrity level within the company. By facilitating structures for corporate governance, they can help you ensure that the company is positioned on a firm foundation that will lead to continued success.
Key Internal Accounting Controls
What are some of the main purposes of strengthening a company’s internal controls over financial reporting? One is to set up a defense to minimize the risk of a material misstatement to the financial statements. Another is to put up a barrier against the temptation to commit fraud. Companies that are going public or newly public are required to enhance and attest to their internal controls under the Sarbanes-Oxley Act, and there are real compelling reasons to do get this done right. As companies start the process or review the state of their SOX compliance efforts, they will want to focus on their key internal accounting controls.
What Are Key Internal Controls?
Internal controls are the systems and processes your company has in place as a protective blockade against mishaps and fraudulent activity that could lead to the need to restate your financial statements. How equipped is the company to detect and quickly respond to errors? And how can your company prevent or minimize the risk of fraud? Your company, with the help of SOX experts, can identify your key controls as a way to mitigate such risks and help you identify problems swiftly. The process of identifying what exactly is a key control can be customized to the unique situation of the company.
At first, after the passage of Sarbanes-Oxley and its internal control provision, known as SOX 404, companies went overboard in trying to meet the compliance requirements and anticipating their external auditor’s expectations for the internal control audits. A big lesson learned since then, from the overwhelming early days of SOX 404 compliance, was that companies should focus on their key internal controls—the internal controls that matter. After all, every company is different and has its own way of doing things.
The Internal Control—Integrated Framework from COSO (Committee of Sponsoring Organizations of the Treadway Commission) lists the five components of internal controls:
Examples of Internal Controls in Accounting
Internal controls in accounting are often designed to identify and prevent errors and minimize fraud risk. They clarify who is responsible for what, while ensuring accountability, reliable financial reporting, and optimal efficiencies among the finance and accounting team. In other words, internal controls can put layers into place that help to ensure a mistake is caught or not made in the first place. Processes and systems that have not kept up with the growth of the company can have a detrimental effect on a company’s SOX compliance risk, and the integrity of its financial data. Segregation of duties in accounting is an example of an internal control that most companies adopt for many processes.
Why Is Separation of Duties Required?
Segregation of duties (sometimes referred to as separation of duties) is one of several crucial internal accounting controls. It is long ingrained in mature finance teams but may not be inherent in the very early days of a company with very few employees. It’s the agreement that more than one person is responsible for a particular task. It keeps everyone responsible in check, while protecting the accuracy of financial statements and company assets. Consider the simplest of examples: One employee processes the checks that come into the office while another records what is received, or an employee needs a manager’s approval to make a payment. Finance and accounting experts can help you ensure that this internal control is covered, through systems that make delegation and access management seamless.
The Importance of Internal Controls
Is it time to assess the internal controls that matter most to how your company operates, to mitigate the risk of a restatement and to see if your SOX compliance program is efficiently run? Companies preparing for Sarbanes-Oxley compliance and even SOX veterans could benefit from an assessment of the processes and documentation practices underlying their financial reporting. SOX experts identify the gaps and inefficiencies and provide solutions that work for your company’s exact needs.
The Importance of Having a Growth Strategy
With a bright future ahead of your emerging growth company, you can’t risk winging it. Making an uninformed leap into a new territory or adding a new product line without knowing whether there’s demand for it is setting up the company for trouble. As you explore ways to steer your company toward greatness, here’s why the importance of having a solid growth strategy cannot be overlooked a moment more.
What Is a Business Growth Strategy?
A business growth strategy includes a deliberate plan, or roadmap, based on realistic forecasting and full awareness of how the business is performing today and what it needs to do to advance to the next step. With a clear growth strategy, senior leadership and employees can align their priorities and be held accountable for meeting milestones, as they work collaboratively toward achieving specific goals or being prepared for potential opportunities.
Defining What Growth Means for Your Company
Growth can come in the form of branching out into a new geography, whether that’s extending your currently regional or statewide offerings nationwide or going overseas. It could entail expanding the products and services you offer. Or acquiring a competitor or a supplier. Or going public.
Every strategic change includes costs and benefits that have to be weighed along with many details to ensure it will be successful and enacted with a clear view (e.g., you will be subject to new regulations and compliance requirements if you expand into another country or pursue an IPO).
What Your Business Strategy Is Probably Missing
The fact is some companies don’t start out with a doable growth strategy. They may be primarily focused on one goal—such as getting their product to market—but they haven’t given proper attention to internal business growth strategies that would support that achievement and ensure that the company can continue to operate successfully beyond one goalpost. Does the company have a solid foundation in place to support and fulfill orders and meet customer expectations? Or will it burn out its resources (including cash and employees) as it makes progress on getting to its product launch date?
Let’s say your tech company is doubling down its efforts on a subscription-based productivity app that has taken off over the past year with work-from-home office workers in Silicon Valley and surrounding areas. You’re convinced the interest in this app will not wane as remote work continues to be more acceptable in this country (to some extent at least), and you want to get past this early stage and fully market the app to remote workers in other states and come up an enterprise version.
Building out the company, through new hires, new space, and new systems, to meet the anticipated demand may be a growth strategy that makes sense at the moment. But are the rosy revenue figures of today making you losing perspective of what’s going on around you? Should your company invest in office space in the current environment? Is your app at risk of being forgotten once more workers return to their company headquarters?
You can gain the insights necessary for understanding the current situation in full and then making a solid plan forward. Management of your resources, what’s coming in and what’s going out, can set up the company with a more sustainable growth roadmap, one that’s not unduly optimistic. It would be rooted in how your company is actually performing today, what it’s capable of, and what needs to change in order to reach your growth goals. Senior-level finance experts are a necessary resource for forging practical, data-driven business growth strategies.
How to Develop a Good Business Growth Strategy
Developing and then managing a business growth strategy can start by assessing your company’s financial health and how prepared your company is for growth. By uncovering the gaps in your finances and operations, changes can be made to put your company on more solid footing and more in touch with the state of your business and its opportunities and risks. Fresh, objective perspective from finance experts who have worked alongside a wide range of companies, along every stage of growth, will give you the information your company needs to thrive and achieve greatness.
What Accounting Services Can Be Outsourced?
Should your company outsource accounting? As companies expand and the need for cost efficiencies rise, it’s a common question. An emerging growth company will look for accounting outsourcing companies that can set up its finance function and provide CFO-level guidance, while a more established company’s need for outsourcing accounting work is more likely to center around an upcoming transaction that requires specialized expertise.
Accounting services can be outsourced for a company of any size, at any stage of growth, but is outsourcing the right answer for your company’s latest finance and accounting needs? Here’s what to keep in mind as you consider outsourced accounting services.
Outsourced Accounting Services and Wide-Ranging Solutions
In the earliest stage of a company’s growth journey, outsourced accounting services can be a starting point toward developing their finance function. A small business, for example, may not see a need for a fully staffed finance team just yet. What they do need are financial reports for management decision-making, cash flow management, accounts payable, and management of payroll and benefits. Obviously the skills and experience needed for each task differ greatly. Just as you wouldn’t look to your A/P specialist to produce your financial reports, you wouldn’t expect to direct a CFO salary toward processing payments.
This is where outsourcing accounting comes in: it’s how you can access the right level of talent at the right time to get the current work done and scale with your business. A consulting firm that helps companies of all sizes provides outsourced accounting services that can meet your current—and future—needs.
Outsourced Accounting Department: Getting One Started for a Growing Company
Emerging growth companies turn to accounting outsourcing companies to get their financial operations established and help them scale up (or scale back if the market or the company’s situation changes—outsourced accounting allows for such flexibility). These young companies need coverage of operational accounting, access to technical accounting expertise, and insights from more senior level finance expertise. CFO expertise is invaluable for advising the C-suite and guiding the company forward.
A full stack CFO solution offers layers of finance support and guidance, including setting up the company with the right accounting software; providing general accounting, cash flow forecasting, and benefits management; and training employees who are hired into the finance team when the company is ready. The solutions can expand to include more strategic advisory services like financial planning and analysis and strategic planning.
Here are some of the many reasons why an emerging growth company would need outsourced accounting services:
Outsourced accounting services can also open up easy access to an interim or part-time controller or CFO, who can develop a solid financial foundation for the company, and oversee the finance team or a particular finance and accounting project as needed.
Ask This Question: Can Your Accounting Be Outsourced?
Some early-stage companies completely outsource their accounting, viewing it as a cost-effective way to pay only for the work they need, when they need it. Another reason to outsource: by bringing in outsourced accounting services expertise or by partnering with a firm that has this expertise, the company has access to a range of finance skills and talent, under a flexible model. When the time comes to hire full-time staff or educate anyone in the company on how finance operates, these experts know your company well and can provide training on new processes, accounting standards, technologies, and more.
What Is Outsourced Accounting?
Many small businesses choose an outsourced accounting firm to take care of their day-to-day accounting needs and act as their entire accounting department. When the company needs more than that, the outside firm can help by getting new employees trained or leading the newly formed in-house finance team. For larger, more mature companies, outsourcing accounting work is usually more about providing technical accounting expertise and handling special accounting projects, and it could involve SOX compliance and the internal audit function. Such companies need a consistent, reliable place to turn when they need outside help, such as leading the implementation of a new accounting standard or taking over as controller for a time after a resignation.
What to Look for in an Outsourced Accounting Team
Ideally, you want to partner with an outsourced accounting firm that can expand the services it provides as your company grows. Look for flexibility and a tailored approach. You want a finance and accounting consulting firm that can meet your every need—from setting up your company’s finance operations to helping your company reach its full potential—depending on your current resources, capabilities, growth stage, and growth plans. Such a firm will be there as a supportive guide for your company through the many changes ahead.
Learn more about how an outsourced accounting firm can help your growing company. Reach out to the pros at RoseRyan today.
The Core Principles Of Good Corporate Governance
Corporate governance principles determine how your company conducts itself—and how it’s viewed by outsiders. Investors and potential acquirers can tell a lot about a company based on whether it follows corporate governance principles, either formally or informally, or ignores them. Here are some core principles of good corporate governance and best practice recommendations as you consider setting up new policies or refine what you already have in place.
What Is the Main Objective of Corporate Governance?
Good corporate governance instills trust among those who work, manage, oversee, and invest in a company. Is the company forthcoming with important information? Can others rely on the information the company does share—namely its financial statements and reports?
For companies that have any plans of going public or already are, their corporate governance practices tend to center around compliance with the Sarbanes-Oxley Act, which, among other changes, created the Public Company Accounting Oversight Board, expanded corporate board oversight, and required companies to have a strong internal controls over financial reporting (ICFR) system, in order to prevent a material misstatement of financial statements. Indeed, a company’s credibility can be tied to its SOX compliance and any of its corporate governance principles.
It’s not enough, however, to have guidelines in place for employees to follow. They also need to be enforceable—and followed—by management. Are they also practical and efficient, and tailored to the company? Good corporate governance entails having policies and practices that are appropriate for each company—in ways that work for the employees, the company’s size and its complexity. With “rightsized” internal controls, for example, companies have manageable solutions for ensuring the inputs, systems, and methods for recording and reporting financial information is sound and can be relied upon by internal and external stakeholders. Another core principle of good corporate governancethat companies need to address is a clear code of conduct, with expectations around what is and isn’t acceptable behavior, no matter where an employee is domiciled (i.e., as a U.S. company, you follow the Foreign Corrupt Practices Act and prohibit bribes).
The principles that underlie a good corporate governance program guide employees to act properly, to do the right thing, and to be on the same page when it comes to understanding how they should operate while acting in the company’s best interest. They evolve as the company expands and its risks change.
What Are the Principles of Good Corporate Governance?
Accountability: SOX strengthened accountability by creating a new dynamic between audit committees and external auditors while also requiring the ICFR auditor attestation. Before an almost public or newly public company has to undergo that first ICFR audit, however, they can ease the process by working closely with SOX experts who can make sure the company’s internal controls address current risks and create a smooth-running SOX program.
Strong leadership: Smart leaders recognize they can’t possibly know everything and that they can get stuck in a state of tunnel vision. Outside expertise can bring valuable perspective on corporate governance best practices and evaluate where improvements could be made to current processes and procedures. Companies can greatly benefit from new efficiencies and better ways of doing things when they can take a proactive and open-minded view to financial statement and internal control audits.
Transparency: When companies clearly have corporate governance issues, they are less than forthcoming on what is truly happening. Such companies may share questionable non-GAAP figures, make unrealistic valuation claims, or fail to promptly update stakeholders on information material to its financial statements. Lack of transparency has caught investors off guard for major fraud violations in the past, so this is one area in particular that is considered to be one of the top financial governance principles a company can follow.
Culture: The tone at the top has a wide reaching effect on ethical behavior and management’s ability to establish a culture of compliance. High-pressure environments that emphasize earnings results over all other priorities can lead to undesirable behavior and can affect a company’s level of fraud risk. The tone needs to be consistent throughout the company, even as employees work remotely.
Communication: Are there clear lines of communication between management and others in the company? Are the lines of communication open for the internal audit team, as they work to understand the company’s current risks? Is the company communicating appropriately with investors and meeting SEC disclosure requirements?
Wondering how your corporate governance principles match up to other companies? Curious how our SOX experts can create a more efficient, seamless SOX program for your IPO-bound company? Reach out today to find out more about our Sarbanes-Oxley solution.
Business Exit Strategy: Why Your Company Should Be Ready Today (Even If You Don’t Think So)
By Pat Voll
Many, many companies are making big moves. And they’re keeping our finance consulting firm busy—we’ve recently helped a number of clients as they’ve headed toward the IPO market: foreign companies wanting to list on the U.S. exchanges, as well as domestic companies looking to capture higher valuations on their own or getting courted by a SPAC.
Besides the level of activity keeping firms like ours, investors and analysts busy, it’s adding to the workloads and stress levels of corporate accounting departments too. Particularly for SPAC deals (involving special purpose acquisition companies), which move incredibly quickly, finance teams often get surprised by the nature and timing of these events, and they end up scrambling. That can put the transaction at risk, and exhaust everyone involved.
Here’s some quick advice to anyone, whether you’re heading a finance team or a key part of it, on assessing and preparing your organization for the potential changes ahead.
Exit Strategy Trends: Busy, Busy, Busy
In recent months, going public or merging with a SPAC have been popular exit strategies. So far this year, about 300 SPACs have raised over $97 billion in initial public offerings. That’s $10 billion more than 2020, which had set a SPAC/public offering activity record. While traditional IPOs are getting outnumbered by SPAC deals, they are seeing high valuations, especially in tech. Data warehouse company Snowflake, for example, scored the largest IPO for a software company by raising nearly $3.4 billion in the fall. Adding to the flurry of activity is foreign interest, as companies from Japan, China, Germany and other countries have brought their stock to the U.S. recently.
Be Prepared: Practical Steps to Take Before an Exit Event
Always be ready. It’s common for a management team or board to work toward an exit strategy but hold their cards close to the vest until an actual transaction is on the table. In some cases, an interested party reaches out and makes an inquiry when the company wasn’t even thinking of an exit. Both of these scenarios would stress out any accounting organization—once you become aware a change is coming, you enter a race against time. Nobody wants to be the reason your company missed its window or its valuation took a hit. You can take some incremental steps now that will save you heartache later—and increase your odds of a successful exit.
Get informed. Start with making an honest assessment of where you are today, and where you need to be as a public company. To understand where you need to be as a public company, stock up on information about the requirements involved. Being a public company involves a lot more than just filing quarterly SEC reports (although that’s a big one).
For one thing, do you have fully GAAP-based financial records, or are you recording your entries on some other basis? For example, have you implemented ASC 606 (Revenue) and ASC 842 (Leases), or have you put those accounting rules off? Are you recording stock-based compensation? Do you have clean quarterly cut-offs?
Has your company had a financial statement audit yet? Were you able to provide all the information your auditors requested on a timely basis, or did this process drag on month after month? What about audit adjustments—were there many? Were they significant? Did your auditors provide any recommendations for improvement?
Build a roadmap to address your gaps. Once you have an idea of the gaps you need to address, prioritize them and build a roadmap to address each one. What would it take to bridge each finance and accounting gap—is it a skill or a problem that you can address by outsourcing, or is it something that you’d want in-house? How challenging is it to find that level of talent in today’s market, and what is the current market rate for that talent? Build out your plan with a realistic understanding of the timeline and the costs involved—tackle what you can afford to take on. If you get surprised by a potential transaction, you will already have your plan in place for long-term success, although you will need to make some adjustments to accommodate the accelerated timeline.
You may not have any idea what skills you’ll need and how or when to bring them in. Let’s say you’re the controller but you have not held this role at a public company. Understandably, it’s challenging to figure out these answers, especially if no one around you has much or any public company experience either. We sometimes see clients who think they’re ready for a particular aspect of public-company life, but the level of documentation and rigor around how they are approaching things won’t cut it.
Corporate Exits: How Do You Know If You’re on the Right Path?
You may be wondering, what is a readiness assessment? You can start one on your own, but it’s hard to do an objective, thorough exit readiness assessment—ideally you can ask a third party to help you assess the lay of the land. It’s best to have a clear picture of the work that needs to be done rather than to find out late in the process. Start with your audit team—get their input on how ready you are to be a public company. They see the end result of your financial statements and how you and your team respond to their audit inquiries. They might not see the heroic effort this takes, and you have to assess that part—is meeting the financial reporting requirements and auditing expectations something you can sustain on a quarterly basis with your existing team? What happens when you layer in the new requirements of being a public company, such as SEC reporting and SOX? You can also bring in an advisory firm, such as RoseRyan, to take a look and help you with the assessment.
We have put together some resources to help you as well—you can read our playbook for a successful exit and read some client case studies on how they leveraged our support.
Smart companies are prepared for the unexpected. By starting early, identifying your roadmap and making steady progress toward your goal, you put yourself in the driver’s seat. We are happy to help navigate your journey with you.
Pat Voll is a vice president at RoseRyan, where she provides strategic guidance into several practice areas, including corporate governance, strategic projects and operational accounting. She also manages multiple client relationships, develops new solutions for the firm and oversees strategic and corporate culture programs. Pat previously held senior finance level positions at public companies and worked as an auditor with a Big 4 firm.
What Is Growth Consulting?
Is your company set up for sustainable, scalable growth? Or is it headed straight toward a wall? It may be time to assess how far your company has come and the path it’s heading down—a fresh look at the foundation you’ve built up to this point can lead to strategic, valuable insights that can change the growth trajectory of your company for the better. Here is how to think about growth consulting as you consider ways that outside expertise can help your business.
What Is Growth Consulting?
Companies that could be characterized as business growth consulting firms guide companies on scaling and reaching their growth goals. Some growth consulting firms do not explicitly use this exact term to describe themselves but the services they provide support the sustainable growth of their clients.
When companies first start out, survival and gaining traction with product development or getting their product or service out to market is top of mind. Lower on the priority list tends to be everything else that’s also important for a long-lasting business—including establishing smooth-running financial operations and gaining an understanding of how the company is truly performing. However, if they do not have a strong financial foundation in place, fast-growing companies could be deluding themselves by relying on inaccurate financial reports and making misguided decisions as a result.
Growth Consultancy Firms Focus on Sustainable Growth
No one wants to take on more employees than they can handle or not hire enough people to meet demand. And of course no one wants to be unable to meet investor or customer expectations or burn out current employees. Running a company is always a balancing act, with a constant need to look out into the future and determine whether what’s being done today is setting up the company for greatness—or a flameout.
But have your current systems kept up with growth? Is it time for an upgrade of your financial processes and systems so you can access more reliable and timely data that you can use to make better informed, smarter decisions?
When you’re in the thick of doing your day job, consumed by all your company’s demands, it’s tough to know the right answers as you weigh various options. Doing nothing or making the wrong move can have serious consequences. We’ve seen it happen with companies that could not keep up with new orders coming in: waiting too long to bring in the right systems that can scale with growth can derail business operations. On the flip side, implementing a powerful ERP system too far in advance can take up serious company resources that are needed elsewhere.
During such times, another view is warranted, from growth consultancy service experts who have worked with hundreds of companies, at various stages of growth, who can advise you on how to bring more visibility around your business performance and ideas on achieving sustainable growth.
How Do You Achieve Business Growth?
Companies can follow a variety of approaches for achieving business growth, depending on where they are in their growth journey and their available resources. They range from relative small steps—a startup could expand their sales team to bring in more orders, for example—to large and more complicated options.
A strategic acquisition can quickly add an entirely new product line to the business and fresh talent. Or an acquisition could be made to specifically quash a competitor, and expand the company’s market share. With the help of a growth consultancy, a company could make itself more “investor ready” as it works toward filing an IPO or becoming a desirable target by a SPAC (special purpose acquisition company) for a fast route to the public markets, by fully adopting GAAP and undergoing its first financial statement audit.
The point is, whether it’s small moves or large ones, you want to know that the move you’re about to make is the right one at this time. A firm that provides growth consulting can help you get a clearer view of how to take your company to the next level.
What Does Growth Strategy Mean?
Every company has its own way of operating and its own goals, yet all companies generally follow a familiar growth pattern, or business lifecycle. Pushing through unique financial challenges as they start, grow, expand, and evolve, companies have many obstacles and opportunities to overcome and grab hold of as they advance to the next level of growth.
A growth strategy can entail sketching out potential scenarios for the company to achieve its growth goals, whether you’re pursuing a growth acquisition or an IPO in the next year. Expert financial planning and forecasting can help pave a path toward a particular exit strategy or expansion plan while also accounting for the unexpected. Trends shift. Opportunity knocks. Customer demand changes. Emerging risks become real risks (e.g., a year-long-plus pandemic). Consultants who can help your company grow can prepare you for likely situations, all the while ensuring that you have the information you need along every growth marker to make informed decisions.
As you look for ways to achieve sustainable, scalable growth, keep in mind that your company’s growth journey is unique. It’s helpful to pick up best practices and to learn what similar companies have done to set themselves up for successful growth, but you also want a plan that is tailored to your company. There is no such thing as an off-the-shelf growth solution. That’s why you will want to partner with finance experts who adapt their solutions and guidance to each and every client. Need a customized assessment of your growth plans or finance expertise? Let RoseRyan know how our consulting team can help.
What Is a Business Consultant and What Do They Do?
Is your company making the right moves? No matter what your role is at your company—whether you’re an entrepreneur in the second year of running a startup, or a CFO looking for efficiencies in the finance organization—there’s a frequent need to get a fresh, outside perspective. By leaning on the expertise of a business consultant or a business consulting firm, you can get affirmation that you are headed in the right direction, or acquire new ideas about where you should you redirect your efforts.
At times throughout your company’s journey, you will want to learn best practices to understand how your company measures up in certain areas, and gain access to expertise for tough projects or transactions—to get your company over the finish line.
What Is a Business Consultant?
The term business consultant can cover a wide range of roles and expertise that you can tap on an as-needed basis for your company. In general, business consultants thrive off tackling different kinds of projects and challenges—the exact work they do often depends on their level of experience and their specialties. A business consultant could be someone who provides powerful, timely advice, and/or someone who rolls up their sleeves and does the work.
For instance, a fast-moving emerging growth company may need business consultants to build out the finance and accounting organization and systems, or serve as the first iteration of the finance team. As the CEO of this company, you may also need CFO-level guidance as you look for advice on scaling your business and pursuing funding options. If the same business consulting firm that provided CFO expertise has a range of experience with companies of all sizes, and all stages of growth, you could continue to rely on them as your company matures.
A business consulting firm with staying power can be an essential resource for a range of company types: whether the company requires interim finance support or extra hands to get the team through a strategic finance project, they can find business consultants in the USA.
A company looking for the support or insights of business consultants may need more than one person to help with a pending transaction. The CEO may need someone who thinks, acts, and speaks like a CFO to converse with the board of directors or help the company with their next round of funding. A team of business consultants may be necessary to help the company prepare for an initial public offering, interact with the auditors and Securities and Exchange Commission to get the IPO done, and then help the business make a smooth transition as a public company.
The needs vary but the premise remains the same: business consultants are not full-time members of the staff but they, for a certain period of time or an ongoing basis, become a part of the team to meet a particular need. A consultant may interact with the company once a week, every day of the week, or just occasionally when, say, the CEO is in need of some expert advice.
What Does a Business Consultant Do?
Business consultants focused on the finance and accounting aspects of running the business wear a variety of hats. For a sense of examples, these are some of the services business consultants can offer:
Independent Business Consultant Vs. Business Consulting Firm
Companies looking for finance and accounting expertise or CFO advice have a choice to make: should they hire an independent business consultant or a business consulting firm? While cost is always part of the decision-making process, it shouldn’t be the only factor. An independent business consultant may respond to your bid with a significantly lower price than a business consulting firm, but your company could end up needing a lot more than just one person can provide over the course of your project or the course of your company’s lifecycle. The initially projected cost savings may not be realized, and you’ll have to go back to the market to find the right consulting experts to help you.
When you team up with the right business consulting firm, even if your initial need starts out with just one person from the firm, you are gaining access to the diverse skills and experience of everyone at the firm. That one consultant can turn to his or her peers for insights on your latest problem or bring in another consultant as your needs expand. When you hire a business consulting firm that you trust and can rely on for a range of finance and accounting issues, you don’t have to go back out into the market to do your due diligence and hire again. You’ve connected with a valuable resource that can help guide your business to greatness.
Learn how RoseRyan’s team of consultants can help your company. Reach out to us today.