After several years of subdued initial public offering (IPO) activity due to challenging macroeconomic conditions and policy uncertainties, there is now significant pent-up demand among companies seeking to access the public markets. As market sentiment improves and economic headwinds begin to ease, companies are actively preparing for IPOs.
For many companies, the switch from being a privately held company to a publicly traded company represents the start of a new era of prosperity and growth. But it is far from an overnight process. No matter the company’s size or industry sector, going public requires considerable planning and preparation across the organization and the full breadth of the accounting function.
This article covers the key elements of IPO preparation, including strategic considerations and a downloadable IPO readiness checklist to support a successful public offering.
Key Components of IPO Preparation
The full lifecycle of an IPO typically takes 18 to 24 months, from decision to listing day. However, the majority of key IPO preparation is roughly a six-to-nine-month process that starts with a readiness assessment and involves a heavy emphasis on preparing financials to withstand increased regulatory and public scrutiny. We explore the key components of IPO preparation in more depth below.
IPO Readiness
An IPO readiness assessment often starts with analyzing the accounting basics, including the company’s policies and procedures, chart of accounts structure, most recent draft of financial statements, and trial balance. By analyzing these foundational accounting items, we can determine the time and effort that will be dedicated to aligning with rigorous standards set by the Public Company Accounting Oversight Board (PCAOB) to ensure IPO readiness.
While it is advisable to begin the IPO process with a thorough readiness assessment — ideally conducted by an experienced third-party advisor to evaluate your organization’s financial reporting and compliance gaps — many companies choose to accelerate their timeline and jump directly into IPO preparation.
In either scenario, robust financial reporting is central to success. Early identification of deficiencies in financial controls, documentation and reporting processes is essential for meeting the standards set by the PCAOB for publicly traded companies. Whether through a formal assessment or a fast-tracked approach, focusing on strengthening financial systems and ensuring accurate, transparent reporting will help mitigate risks and support a smooth transition to public company status.
Financial Reporting and Accounting
Strong financial reporting is the backbone of a successful IPO, as investors and regulators expect timely, accurate and transparent reporting from day one. For example, you may find you do not yet have the financial controls and/or processes in place to comply with the PCAOB standards for publicly traded companies. These are far more stringent than the American Institute of Certified Public Accountants (AICPA) rules for private companies and are closely scrutinized by the U.S. Securities and Exchange Commission (SEC).
Achieving this level of transparency and discipline signals to investors and the market that your company is ready for public scrutiny. This means having:
- Accelerated close processes
- Robust account reconciliations
- Clear documentation of accounting policies
- Preparation for quarterly reporting cadence
- Readiness to address complex accounting topics such as revenue recognition, stock compensation and segment reporting
The reality is, if a company can’t close its books within a few days of month-end, it is a clear sign that more work is needed before going public. Meeting SEC requirements — presenting two to three years of audited financial statements under PCAOB standards — within the IPO process is time consuming. For many organizations, it may be their first experience with a full audit, and it requires coordination among auditors, lawyers, investment bankers and internal teams.
Governance Structure and Advisory Bodies
Governance and advisory services provide specialized knowledge to help companies manage the various complexities of going public. Together, they support readiness through structuring the equity story, managing investor relations, ensuring compliance and more. Key advisory bodies include:
- Board of Directors: A strong board provides needed oversight and accountability, both of which are heavily emphasized during IPO preparation. Consider diversifying your board as you prepare for an IPO, as expanding beyond your original leadership team will bring new skills that reflect current industry challenges and create a diverse set of experiences to address these obstacles.
- Executive Leadership: When you’re bringing on new investors and additional regulatory oversight, the leaders at the top need to be well-equipped to handle the new responsibilities of a public company. In particular, CEOs and CFOs should have the required skills to support expansion and manage activities critical to IPO readiness.
- Third-party Advisors: Advisors offer support and specialized insight into the IPO process. Collaborating with third-party partners can be especially helpful for private companies with lean teams.
Legal, Regulatory and Compliance Requirements
Going public means navigating a complex legal and regulatory environment that includes compliance with securities laws, adherence to regulatory filings and robust corporate governance policies. Compliance with these requirements signals investor trust and assists with long-term value creation. Specific requirements include:
- SEC Registration: To go public, companies must submit the mandatory registration statement, Form S-1, to the SEC. Detailed financial and management information is disclosed in this form.
- Securities Laws: Federal securities laws, such as the Securities Exchange Act of 1934, govern the registration and trading of securities.
- Financial Reporting and Internal Audits: Public companies follow strict financial reporting requirements, including audited financial statements aligned with Generally Accepted Accounting Principles (GAAP). Periodic reports must also be filed with the SEC.
- SOX Compliance: While private companies are not subject to the Sarbanes-Oxley (SOX) Act, 2002 legislation intended to protect investors from fraudulent reporting, publicly traded companies must implement processes and controls that are SOX compliant.
Pre-IPO Checklist: Strategic Considerations
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12-24 Months Prior to the IPO |
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6-12 Months Prior to the IPO |
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For a more comprehensive overview of the various steps in the IPO preparation process, download our complete IPO readiness checklist.
How Cherry Bekaert Can Help
Cherry Bekaert’s IPO Advisory Services help your management team set a clear, realistic IPO process timeline and IPO readiness checklist to prepare and execute your public offering. The most successful IPOs are those viewed as a holistic, long-term process of change, rather than a single transaction. The rewards of going public can be considerable. It is worth taking the time to get yours right.
Readiness is just the first step to a successful IPO, and Cherry Bekaert’s Accounting Advisory professionals can help CFOs and controllers see the full picture of their organization’s IPO journey. Because of our size and scale, we can bring you the right people, with the right experience, at the right time. Our accounting professionals offer support on technical accounting and transaction-based accounting to broader services, such as digital transformation and more.
Our experienced CPAs are involved at every stage of the journey — from plugging gaps in capacity or capability to managing internal and external stakeholders. Reach out to an advisor today to learn more about how Cherry Bekaert can support your IPO process.
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