The board of directors can play an important role in helping pre-IPO companies prepare. By digging into the process and asking the right questions, boards may be able to ensure the company dedicates the appropriate resources to these essential parts of the business. This will help ensure that the company is ready to meet its reporting obligations and deliver investor-grade information to the market.
The finance function can help determine whether a business’s debut as a public company is a successful one. New stakeholders, including shareholders and regulators, mean new and higher expectations. Investing in the right people, processes, and systems can help ensure that the company is ready to meet those expectations. Missing the mark could mean errors in reporting. It could even mean needing to disclose a material weakness or restating financial statements.
Most companies en route to an IPO will probably need to expand their finance teams substantially, adding key roles such as an SEC reporting manager, a controller, financial planning and analysis and tax directors, investor relations, or even a chief accounting officer. But it’s not enough to simply flesh out the organizational chart—it’s also important to have the right people in these roles. Prior public company experience can be a significant advantage.
Companies may find that the IT systems and software that served them well as private companies aren’t up to the job post-IPO. For example, private companies often use homegrown financial software that can’t easily be overlaid with adequate controls. Such platforms may make it challenging to meet SEC reporting deadlines. And migrating to more capable systems can be expensive and time-consuming.
Public companies face much greater scrutiny than private ones when it comes to budgets and financial forecasts. They need dynamic and responsive budgeting and analysis that can respond to shifts in the performance of the business that inevitably occur. Additionally, companies working toward an IPO sometimes wait until after it occurs to begin their Sarbanes-Oxley compliance process. This leaves little margin for course correction if challenges arise.
Directors should ensure management has identified any gaps early and is taking the appropriate steps to build the teams and processes needed. Key questions the board can ask include:
What additional resources are required to bring financial systems and processes up to the level needed to meet regulator and shareholder expectations?
What’s management’s plan to build budgeting and financial planning and analysis capabilities? What investments have been made to enable accurate forecasting of financial results?
What changes need to be made in how management closes its books to improve accuracy and meet SEC reporting deadlines?
Are we comfortable that management’s plan to address the adequacy of the finance function’s human capital, resources, and processes is reasonable?
What timelines will be used to hold management accountable?