Taking a company public is a significant step in the evolution of a business, and one that will change how the company conducts its business going forward. The process for taking a company through an initial public offering (IPO) can be very time consuming and challenging, particularly if the company isn’t well prepared. In addition to assessing the market, a successful IPO requires advance planning and having the appropriate resources and team in place.

It is possible for companies to begin planning for an IPO just months before the offering; however, that isn’t recommended. A detailed plan, with execution targets, over a one- to two-year period, would provide the company with the ability to implement the necessary internal controls, procedures and processes to function and report as a public company, as well as provide adequate time to gather the information that underwriters and others will request during the process, and draft a well-written and thorough registration statement. Additionally, a longer timeframe will allow the company time to react to needed changes, for example, changes in management, members of the board of directors, professional advisors, and reporting requirements.

In addition to management and the board of directors, companies also will need to consider what other company personnel and outside advisors or consultants they will need as an integral part of their IPO team. This may include attorneys, investment bankers, auditors, and accounting advisors. For this article, let’s start with discussing internal company resources.

When thinking about being a public company, private companies need to assess the capabilities and experience of the current management team. It is vital to the success of the IPO and for the ongoing confidence of investors that the management team has the appropriate knowledge and experience to be effective at running a public company and creating value for its shareholders. This may require additional people with the requisite public-company experience be added to the management team in various areas, including finance, operations, sales and marketing, and information technology. Identifying senior executives, including a five-year work history for each individual, is required in the registration statement. A strong management team is often viewed as a major selling point.

Going through an IPO will no doubt require a significant commitment on the part of the company’s staff. While also fulfilling their normal day-to-day responsibilities, company personnel also will likely be asked to assist with preparing data, documents and analysis. Companies will need to determine if they have adequate staffing to maintain the daily operations and meet this added demand. Not having committed personnel could be very detrimental to the success of the IPO.

Companies should also consider if establishing a separate financial planning and analysis team is necessary. During the IPO process, the underwriter will ask the company to provide financial projections and a comparison of historical results to budgets. The accuracy of this information and ability to meet earnings estimates becomes critical to the success of the IPO, as it has a significant impact on stock performance. After the completion of an IPO, preparing realistic budgets, updating forecasts and analyzing variances is an important tool in setting market expectations.

Companies should also consider if their financial reporting team is sufficient for the ongoing quarterly and annual reporting requirements, along with other reporting that may be necessary throughout the year as material events and transactions occur. Management should assess the skills of those currently in the financial reporting role and determine if there is adequate knowledge from a technical accounting and SEC reporting perspective, including the ability to draft a well-written and comprehensive management’s discussion and analysis, prepare financial statements and disclosures that are compliant with generally accepted accounting principles and Securities and Exchange Commission (SEC) regulations, and protect the company from the occurrence of material misstatements and omissions. As discussed below, companies may determine that outsourcing some of the reporting preparation to a qualified accountant may be more cost beneficial. However, in this situation, it is imperative that management understand and take full responsibility for the company’s financial reporting.

Deciding to take a company public is a very exciting time, and if completed successfully can prove to be very advantageous for the company. However, pulling off a successful IPO doesn’t just happen. It takes proper planning, strong execution and a solid, dedicated and focused team. If your company may be heading down the IPO path, make sure your team gets prepared early in the process.

Tammy Gamble is a partner based out of our Rochester, NY office.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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