By David Brightman, Director of Product Marketing at BlackLine
Going public isn’t just a flip of the switch. It requires careful preparation. But by starting early, by implementing the best accounting practices, companies can improve their efficiencies for today and be ready for tomorrow, when they may decide to hold a public offering.
For now, the best thing companies can do is subject themselves to rigorous reporting deadlines and the expected UK-SOX style regulations. By doing this, they can then leverage these experiences to identify the gaps in people, processes, and systems and make the necessary investments, not just for today, but for two to three years down the road.
With that in mind, here’s my advice for companies looking to maximise IPO readiness.
Prepare Your People
Preparing to go public means evaluating not just your processes but your people. Your accounting staff is key to helping you get the most out of your accounting process and technology. They’re also your most valuable resource in analysing and creating strategies that support the company’s long-term financial health and sustainability. Yet too often, accounting teams within private companies lack the experience and capabilities that are critical to transitioning to—and functioning successfully as—a public company. The best advice is to start early, evaluating what you have and what you think you may need.
If you determine new people or new skills are necessary, the next step is to decide how you’re going to accommodate this need. While it may be tempting to “wait and see” which resources you need after you go public, don’t. You need a good team in place and it takes time to find the right people. In addition, you may need to line up external resources. Companies that have had a successful and timely IPO process both plan far in advance and know when to ask for help. Your team can’t do it all—and shouldn’t have to—and engaging experts in certain key areas can be a smart move. For example, you will need technical accounting capabilities even before being public. Know that the most profound gaps in skills are often seen in revenue recognition, and general technical accounting.
Strengthen your controls
As a public company, you will be responsible for reporting financial results and other information publicly in an accurate, reliable, and timely fashion. Your stakeholders, stockholders, customers, and more have many expectations about the company’s growth, smart use of resources, and ethical behaviours. Effective internal controls and systems can be a powerful solution for getting this right. Controls enable good business practices, provide better reporting to enable better decision-making, and help ensure timely compliance with regulations. Additionally, you will be subject to a variety of internal controls requirements. Thinking about controls while private and implementing strong controls early can increase board, investor, and auditor confidence in your accounting processes and readiness.
Identify and assess the controls you have in place
Take the time to understand the controls you have in place and if they are sufficient to mitigate risks posed to your organisation and the requirements of UK-SOX style regulation. Identify where the gaps are, prioritise those that are most significant, and determine how you will address them. Plan and prepare for this early; otherwise, the risks of IPO filing delays increase significantly. These new skills—and perhaps even new employees—are also a key component in avoiding indications of material weakness, or worse, the need for a financial restatement.
Furthermore, identify where you could invest in technology to strengthen controls and enhance F&A processes. If you’re going through an IPO, it’s likely your business is growing fast, meaning you’ll require smarter, more scalable processes and systems capable of adapting to growing transactional volumes or greater accounting complexities, which will naturally arise as the business evolves.
Think like an auditor
Lastly, anticipate what external auditors are likely to ask, to help you prepare for any difficult questions. What would an auditor identify as the biggest areas of weakness today? What risks might they see a year from now if you don’t enhance existing controls? What controls will help avoid any significant audit adjustments or misstatements?
Taking Centre Stage
Once your IPO is in play, what’s been going on behind the scenes and on your financial statements may suddenly be subject to rigorous scrutiny, so ensuring all the above steps have been taken will work in your favour.
As well as ensuring you’re IPO ready, this investment will also prepare your F&A teams to take on future work as your accounting complexity and volume grows and your business evolves.
