What CFO does to prepare Company for IPO

Top 5 Essential Steps to be taken by CFO to prepare for an IPO

Now a days Preparing organization for IPO comes as one of the key responsibilities of CFO. For many chief financial officers, directing an initial public offering is one of the most challenging and rewarding tasks they undertake. Generally How they handle the run-up to the IPO is critical to setting the stage for success.

Here briefly, are five essential steps a CFO should take so as to be ready to tackle the responsibilities posed by an IPO and help the company thrive as a public entity:

1. Assess and upgrade the fiscal organization.

The CFOs of public companies spend the majority of their time away from day-to-day finance operations, so they need a team in place that they can trust. 

The most important hire is the controller, who leads the team in the CFO’s absence.

CFO should also add an expert in financial planning and analysis. 

CFOs should be actively involved in the scouting and hiring of core members of the IPO team, including an underwriter, a banker, an accounting firm, an audit firm and various legal advisors. They should have previous experience in taking a company public.

2. Prepare for rigorous financial reporting.

CFOs must create a comprehensive IPO plan that balances the company’s short-term objectives with its long-term goals and that allows for the coming onslaught of real-time reporting required of a public company.

Excel spreadsheets won’t scale properly, and manual accounting, budgeting and general ledger upkeep are too prone to error and time consuming. It’s essential to deploy an automated financial-reporting technology solution that is scalable and easily integrated with other systems, including budgeting and forecasting, enterprise resource planning, customer-relationship management and business intelligence.

CFOs should also practice public-company reporting by implementing ever-shorter reporting times.

3. Address tax concerns.

CFOs of private companies may have limited experience in dealing with the complex tax-related issues and considerations of a public company. They need to bring IPO tax and valuation issues to the forefront to set up their companies for success.

To do this, they should work with an IPO-experienced tax advisor to reconcile their financial statements with the relevant tax provisions, while implementing systems for automatically reconciling financial data with these provisions. They also need to determine the key tax attributes that carry risks for the organization.

CFOs also need to account for possible future expansion and tax structuring when pitches to investors.

Strategic CFOs should also avoid producing inadequately prepared valuations that can cause investors to question the company’s IPO readiness. Ideally, CFOs should work with a third-party valuation specialist and have the auditor approve a valuation before the company grants stock options relying on it.

4. Improve processes and implement controls.

The effective review of a company’s internal controls provides assurance about the completeness and accuracy of the financial data needed to drive the business and bolster investor confidence. 

CFOs need to focus their efforts on making internal controls part of day-to-day business operations, developing a checklist for critical processes and control items. 

They also need to understand clause 49 of listing agreement and ensure adequate internal control across organisation.

Prior to the company's going public, CFOs should address high-risk gaps in controls by completing a risk assessment, which is a quantitative review often carried out by an accounting firm.

To help ensure success, CFOs should consult with experienced peers and trusted accountants, attorneys or a banker 

Auditors can also be a valuable resource, especially when it comes to explaining the benefits of switching from an Excel-centered, manual-control environment to a technology-driven, automated-control environment.

5. Enhance investor relations.

While the SEBI has its own procedures but the management team should embark on a road show to provide financial analysts and investors with the opportunity to question management -- particularly the CEO and CFO -- about the company.

The CFO’s financial presentation becomes vital to creating a favorable impression among investors. The presentation should include revenue, outlook, net income and operating cash flows without overpromising or being overly optimistic. CFOs also need to ensure they’re involved in the pricing process and work to provide existing and new shareholders with a solid return on their investment. 

These above mentioned broad 5 things are key ingredients for launching successful IPO, however there are some other factors to be considered like showcasing company in public, timings of IPO, building confidence among investors ,brokers, operators etc. are also plays important role.

Amit Hajela