Insights > IPOs on the Rise: How CFOs Can Prepare to Take a Company Public

IPOs on the Rise: How CFOs Can Prepare to Take a Company Public

The initial public offering (IPO) market is rebounding, and private company CFOs can ensure readiness by considering three key factors.

As an avenue for raising capital this year and in 2024, IPO markets are showing potential for calibrated growth. Many CFOs at mid-market companies remain cautious about spending — in light of pervasive economic and resource constraints — while pressing ahead with targeted investments in strategic projects, including IPO readiness measures. To prepare their organizations to operate as a public company, proactive CFOs are investing in refining the organizational structure, enhancing processes (including controls), and sharpening capabilities through technology.

As private companies consider how to successfully prepare for an IPO journey,  three key questions can help CFOs and management teams address the nuances and challenges that often arise:


What is the optimal organizational structure and alignment?

Overall, CFOs focus on both the breadth of the organization (with the proper functional alignment) and the depth (with the right spans and layers, SME-to-analyst ratio, and appropriate leveling and service delivery model). Most CFOs start thinking about the organizational structure at least 8-12 months before the S-1 filing date, develop hiring plans, and hand out additional responsibilities to leaders within their organization. These broader aspects should be addressed:

Optimizing the core: The first lines of defense are the Accounting and Financial Planning and Analysis (FP&A) functions. In most companies readying for an IPO, these two functions need to undergo a rigorous transformation to comply with the US Security and Exchange Commission’s initial and periodic reporting requirements and timelines. For mid-market companies, a clear segregation between controllership and business partnership becomes essential because closing the books is as important for the company as the ability to forecast quarterly and annual performance for the investors. Further, establishing a technical accounting function is vital to driving the right policies and ensuring the accuracy of financials. Most companies explore back-office capabilities to drive sustainability and efficiency in managing public company demands. This includes assessing the current service delivery model to ensure the right resource mix is aligned with the target state processes and technology stack.

Strengthening the front line: As companies go public, hiring leaders in critical functions and driving alignments become essential, such as investor relations, internal controls, treasury, and FP&A. Key discussions revolve around not just hiring decisions but also around the segregation and standup of activities from the incumbent positions currently held by individuals who might be wearing multiple hats. Creating a career path and clarity in roles and responsibilities becomes an area of focus for the office of the CFO, evolving functions to operate well to meet the expanded demands of a publicly held organization.


What minimum viable processes and controls are required for an IPO-track company?

When preparing for an IPO, CFOs should be particularly mindful of SEC requirements; they can make an impact by optimizing close processes and enacting a comprehensive approach to controls.

Optimizing financial close processes: One of the foundational focuses of IPO preparedness is the company’s ability to produce accurate, quarterly, and yearly financial statements. Often, this is the first activity CFOs focus on to align with the public company requirements. High-priority objectives for establishing a standardized process might revolve around the following outcomes:

  • Creating an integrated close calendar with clarity on due dates, cut-offs, and interdependencies of tasks supported by a close and consolidation tool.
  • Aligning the critical technical accounting memos or policies with operational processes, for example, aligning the ASC 606 Revenue Recognition memo to drive accurate recognition through standardizing billing processes and making sure the technology is configured to support the changes.
  • Simplifying and reengineering processes across the record-to-report, order-to-cash, and procure-to-pay ecosystem to drive clarity and eliminate non-value-added tasks.
  • Establishing a process that streamlines and automates manual journal entries, accruals, re-classes, and reconciliations to drive faster close.
  • Rationalizing the chart of accounts to enable the proper account structure and reporting. Most companies invest in this early on to drive a scalable general ledger (GL) structure with a simple nomenclature that reflects the business events and the ability to book transactions accurately and achieve reporting clarity as per the public company reporting requirements.
  • Balancing workloads Most companies do not balance the daily workload, resulting in fatigue and burnout. Understanding the critical path for month-end accounting close will enable the team to shift tasks to the pre-close period as much as possible, thereby accelerating the process.

Ensuring an end-to-end controls management process: Most companies conduct an end-to-end risk assessment to gain a holistic perspective of control deficiencies — including SOX, cybersecurity, IT general controls (ITGCs), and other system controls — and material weaknesses in their financial statements. The following best practices are important as CFOs think about going public.

  • Prioritizing an initial risk assessment will help understand the baseline regarding process maturity and the extent of control integration. A control assessment typically results in well-documented control requirements, gaps, and a thorough understanding of the current baseline. Based on the established baseline, a remediation plan can be created to define (or redefine) any existing controls and establish a new control structure.
  • Amid changes, honing methods for operationalization: Many companies understand the big pitfalls (material weaknesses and misstatements) through the annual audit cycle and internal audit teams but struggle to find a solution and operationalize the change. Often, changes might require complicated negotiation and complex change management across functions and will require specialists to drive the change. For example, it is easy to know that revenue recognition is a company’s problem area, but it is challenging to operationally mobilize the teams to reshape contract management and billing. Doing so requires working with the sales teams and billing teams to implement methods for proper structure, arrangements, and recognition—which can be a challenge in most organizations and requires a top-down push.
  • Unifying the organization to create and review the control structure will help build accountability and make this a sustainable change. Further, complying with the control structure becomes a part of their job responsibilities.
  • Understanding timing and adoption is everything, and being careful and deliberate about the bandwidth of existing teams is critical. Including the teams in the design, implementation, and testing of controls will give them clarity and a sense of purpose to participate in and sustain the change.
  • When executing a remediation plan, it must be aligned with the changes in processes or technology to ensure an appropriate integration of the control structure is possible. Lastly, establishing the infrastructure to monitor and drive compliance builds sustainability and accountability within the ecosystem.

Implementing the right controls can take a significant amount of time and pull on resources from all departments of an organization to establish and maintain. As such, it is imperative to develop a well-thought-out plan to ensure the company has the bandwidth to absorb this task (in addition to all of the other activities that will take place during the pre-IPO and post-IPO timeline).


How should a CFO think about technology as a company prepares for an IPO?

CFOs typically face a dilemma about how much time and investment they should dedicate to the broader technology landscape, and most mid-market companies are in a high-growth phase but remain low on maturity regarding technology.

Three primary focus areas need to be tackled to ensure a company’s technology enables IPO readiness:

Ensuring foundational ERP Capabilities: As they get started on the IPO process, many mid-market companies make minimal investments in the enterprise resource planning (ERP) ecosystem, and private companies often use basic accounting systems like QuickBooks. A quick technology assessment would be beneficial to understand if the current ERP would meet the public company requirements. In some cases, migrating out of Quickbooks to a standard ERP platform might be needed. Also, companies often need to align the policy, process, and data structure with the target state ERP design to ensure seamless adoption and change management. At the core, CFOs and their technology advisors should ensure the foundational process framework of procure-to-pay, order-to-cash, and record-to-report are fully orchestrated within the platform with minimal interfacing applications.

Streamlining billing and collections: Most mid-market companies do not use an ERP platform for billing as the system is often not configured properly or is not capable of supporting their complex billing arrangements, which results in Excel workarounds or a combination of other point solutions that serve each company’s needs. These companies often rely on Salesforce plus a third-party billing platform to drive the quote-to-invoice process. Implementing a billing and collections platform will ensure that the billing profiles and associated revenue recognition rules are in line with the defined ASC 606 Revenue Recognition memo and comply with US Generally Accepted Accounting Principles (GAAP).

Considering close and consolidation tools: As a company’s accounting and finance teams address process and data challenges related to close and consolidation, investment in a tool like OneStream or its equivalent would significantly bind the changes and drive the team in the right direction. A platform-based solution can streamline the consolidation process and integrate directly with the planning system and reconciliation tool to allow accounting and finance teams to work efficiently from one source of truth and reduce the opportunity for errors. The addition of supporting close management tools for task management and others can further button up the process to help enforce accountability and provide the visibility management needs to ensure all critical tasks and controls are completed within the reporting period without having to comb through a labyrinth of network files and printouts for signoffs.

CFOs at companies aspiring to become public need to be targeted in their approach. To be well-prepared for an IPO, CFOs should work with their in-house teams and advisors, planning at least 12-18 months ahead of the transaction to set up the right foundation. A lean organization structure and operating model, simplified processes with integrated controls, and ensuring investments in the right technology stack will support the future operating and reporting requirements of a public company.

To learn more about preparing for strategic changes such as an IPO, read related insights as part of Riveron’s ongoing capital markets series.

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