Are You Ready to Ring the Bell?
Much of my career has centered on helping companies optimize their financial operations and secure funding for business growth. I’ve advised companies ranging from seed-stage start-ups to global enterprises as an auditor, a management consultant, a financial software designer, and a go-to-market executive. I’ve navigated intense projects in all of those roles, but nothing is quite like the experience of preparing for an Initial Public Offering (IPO).
If your management team is considering an IPO, be prepared for one of the most challenging—and, potentially, one of the most rewarding—periods of your career as a finance professional. There is intense pressure on the CFO and the finance team because all stakeholders rely heavily on the CFO to ensure a solid financial position that attracts investors when the CEO rings that bell.
The CFO Under Pressure
During periods of significant economic turbulence, as we’ve experienced recently, the window for IPOs can open and shut very quickly and unpredictably. So, the company has to be ready the moment that the conditions are right.
However, it takes 1-2 years (or more) for a company to prepare for an IPO. This long lead time is due to the fact that the CFO must prepare historical, current, and Pro-forma financial statements and disclosures, including filing a “red herring” for the SEC’s consideration well before the IPO happens.
The CFO must also provide evidence of strong controls and regulatory compliance that stands up to scrutiny by auditors and regulators. If a comprehensive control framework was not in place previously, it could take a significant amount of time to deploy.
The CFO’s deliverables are especially important to the CEO, as the CEO must also attest to the strength of controls that allow investors to rely on the accuracy of financial and operational information. The CEO will look to the CFO to provide the assurance that they need to sign on the dotted line.
Key Attributes of a Strong IPO
Beyond a solid financial position, there are several key attributes of a company that stakeholders look for in an IPO. Fortunately for the finance team, there have been significant advances in technology platforms that can smooth the path.
Cash Flow and Working Capital
If an investor is planning to hand over cash to your company, they want to see effective cash management practices and responsible controls, especially ones to prevent overspending and fraud.
Effective Financial and Operational Controls
Since the Sarbanes-Oxley regulation went into effect, the degree of regulatory oversight and new rules applicable to accounting and controls has expanded dramatically. Automation here is key—and expected by auditors. There have been great strides in technologies that help finance manage controls, most recently in artificial intelligence and machine learning. While it’s critical to establish and monitor controls, much of this work can be intelligently automated to allow personnel to focus on more strategic functions.
The market expects much more transparency and faster reporting cycles from a public company than the finance team may be accustomed to. CFOs should look to technologies that boost speed, reliability, and accuracy in financial processes to address the demands of investors and regulators.
The close cycle is a prime candidate for automation to achieve operational effectiveness. Public companies tend to have more complex organizational and legal structures to optimize revenues and tax obligations, for example, so it’s important to ensure that software solutions provide instant insight into finances, especially across multiple entities.
Ability to Scale
Investors also consider whether the company is in a position to grow its business post-IPO. For the CFO, this means that software solutions must be able to scale with the company. On-premise software is a thing of the ancient past. Look for 100% cloud-based solutions that allow access from anywhere and consider what transactional, repetitive, or time-consuming functions you can streamline and automate.
While preparing for an IPO is always an intense and lengthy process, making the right choices about technology to support finance will help you smooth the way.