When considering an initial public offering, leaders often focus on the steps to file with the SEC but don’t step back to assess the broader range of issues they must tackle in preparing to be publicly traded. For instance, public companies must be able to accurately forecast and meet earnings results and close the books efficiently to allow required 10-Q and 10-K filings to be prepared, reviewed, and filed in accordance with SEC timelines. Operating like a public company before you go public can help ease the transition and set your company up for greater success and fewer stumbles in the first few quarters.
Additionally, if your company is on a “dual track” and exploring selling the business as an alternative exit strategy, operating with the discipline of a public company can often yield a higher valuation in such a sale, particularly if the acquirer is a public company. You become a more attractive acquisition for a public buyer when public company processes are already in place.
The move toward becoming a public company is a general maturing of your business and requires an organization-wide transformation. This requires a change in thinking that must come from the top. Your executive-level team must see benefit in acting like a public company and help their respective teams alter their mindsets, as well. Such a move will not just affect your finance and accounting departments, though that is a good place to begin assessing your needs to determine whether you have the right people in place—a strong controller to manage closing the books, a financial planning and analysis team to forecast results and provide estimates to analysts, and a financial reporting function to take care of SEC reporting needs. Filling these roles with individuals who have public company experience can be helpful, and you might also consider seeking an experienced CFO that has already been through the IPO process.
Some concrete steps you can take to become public-company ready include:
- closing the books each quarter in a timely manner with all typical year-end audit adjustments
- compiling quarterly financial information according to a timeline that resembles what you may need to do as a public company
- preparing a mock earnings release that includes forecasted results for future periods
- conducting mock earnings calls internally or with a PR firm.
These activities allow you to practice what it is like to run as a public company prior to completing an IPO, helping ensure you are prepared for the challenge.. And again—if you decide not to go through the offering process, you’ve made your company better prepared for a sale to a public company.
It makes sense to also look at your technology and systems and upgrade where necessary. For instance, you might need a new ERP system, a more robust inventory management system, or more advanced FP&A and financial reporting tools. The selection process for new technology can take months, and it can take a year or more to implement some business systems. You can be proactive and begin this process early instead of having to juggle significant technology changes at the same time you’re doing your first filings as a public company.
MorganFranklin helps clients with IPO assessments by reviewing a company’s preparedness across many aspects of the business, including the finance and accounting function, technology and systems, internal controls, FP&A, and HR. By providing high-level observations and action items based on what we find, we can help you prioritize next steps and help you act more like a public company so you’re ready for an IPO or acquisition.