What are the things you should know before you take your company to IPO?
- You need a great CFO in place
- You should have a capable finance team
- You have to build the right board
“How do I take my company to IPO?” To answer this question, many things should be first considered. Going public is a big deal for almost any company. An IPO, or an initial public offering, allows your company to have a huge round of financing which can then be invested in the continued growth of the company. Hopefully, this should also make the company become more profitable or even more profitable than it already is.
Going public often gets a bad reputation because of the challenges and the complexity that is associated with it. The process of going to IPO, however, does not have to be difficult. One of the most important things CEOs should consider is to get started early enough, ideally after 18 months of operation. He or she should then bring together core business processes and functions that are crucial during the first year of reporting.
If done properly, taking your company to IPO can minimize expensive distractions and ensure compliance especially during your first year as a public company. But what should CEOs of startups and other private companies consider when thinking about eventually going public? Here are three things you should know before you take your company to IPO:
You Need a Great CFO in Place
Having a great CFO in place is important for any company that is already in their later-stage. It can be easy to reduce a CFO as nothing more than a glorified “scorekeeper” of the financials of the company. This is a common misconception because a good CFO doesn’t just keep score, he or she also makes it a point to oversee the entire business.
The CFO is also important because, over time, he or she tends to become the face of the company to the investors along with the CEO. The CEO and the CFO are expected to present the company during roadshows, but the CFO is going to be spending as much or even more time with the analysts and investors than the CE once the company becomes public.
It is not a good idea, however, to hire a CFO just before you take your company to IPO or worse, have your CFO exit the company as soon as the company becomes public. Having a dedicated CFO shows that your company has stability, so hire one that can help you both in the short- and the long-term.
You Should Have a Capable Finance Team
There is a bar for readiness that your finance team needs to overcome before you can take your company public. The leadership in your company need to be able to make a forecast about the business down to the finest details. For this reason, they also need to be able to close the books accurately and in a very timely manner.
You desperately want to avoid the dreaded “restatement of earnings” that casts a shadow of doubt on the competence of your company, so accuracy is important. Public companies also need to be able to report their earnings a few weeks after each quarter closes so the timeliness of your finance team is crucial.
Usually, the key finance personnel that is expected to do all of these reports directly to the CFO of a startup. These include the controller, head of auditing, head of financial planning, and head of tax. Before all of these second-level roles are filled by strong people, you typically do not have a finance team that is ready to go public.
You Have to Build the Right Board
The board of a company is usually dominated by its lead investors during its early stages. A board membership that is populated only by venture capitalists with large ownership positions, however, often put into question the readiness of a company for IPO.
Most VCs have probably never run or worked at a public company so very few, if any, have a meaningful experience when it comes to serving on the boards of public companies. Also because of the guidelines that govern the SEC and stock exchange, the boards of public companies have requirements that the outside or independent directors of large investment often can’t fulfill.
Therefore, the CEO of a company that is expected to IPO needs to execute a transition within their board where most, if not all, of the investment board members, are replaced by independents.
You should take these three points into account if you are thinking about taking your startup, or any company really, to IPO. Companies that have spent the time addressing these things stand to experience fewer distractions during their first year of reporting to somebody other than themselves.
If you have ever asked yourself the question “How do I take my company to IPO”, the best place to start is having a finely-tuned management and finance system that can deliver data, drive performance, and encourage better decision-making.