Yes, you can IPO in a volatile economy - here's how

(© Lightspring - Shutterstock)

There’s no question that businesses across almost every sector will continue to confront tremendous economic uncertainty. Historic inflation, staffing disruptions, soaring interest rates, supply-chain challenges, and many other factors have combined to complicate the pursuit of growth funding through initial public offerings.

As Noah Higgins-Dunn wrote on CNBC.com:

The market for initial public offerings has fallen off a cliff in 2022.

EY and Dealogic give the specific numbers: US-listed companies issued IPOs that raised more than $155 billion in proceeds in 2021 through their initial public offerings. In the first half of 2022, they only raised $4.8 billion.

But even in these turbulent conditions, an IPO absolutely remains a viable option – when you start with the right foundation to overcome adverse conditions. The fact is, even under the best circumstances, public companies must contend with vast new range of logistical challenges, regulatory obligations, and forecast predictability that must scale and comply with legal and industry frameworks. Here are some of the most valuable and essential steps any company can take to prepare for its IPO – particularly in a volatile economy.

Implement robust internal controls

As you step up from private to public ownership – and your business complexity scales up with more employees managing complex and overlapping processes – you face stringent requirements to establish and maintain a series of internal controls that demonstrate you are operating within proscribed legal and regulatory compliance frameworks. Even a single lapse can create significant legal consequences and erode investor confidence that can be very difficult to regain.

Going public means your company must focus more than ever on managing its financial and market reputation. As a CFO, it’s up to you to ensure your company has the appropriate internal-control architecture to safeguard the company’s reputation and avoid regulatory oversights. You need to implement controls for:

• Approvals – Make sure you follow and actively approve different transactions and activities as needed. Also, ensure everyone understands what they can and cannot approve.
• Custom workflows – No two companies are exactly alike, which becomes especially apparent during an IPO. Make sure you have the flexibility to meet your precise needs.
• Audit trails – In any public company, audit trails are a non-negotiable requirement to furnish objective, verifiable proof that no individual has sole control over 100% of a transaction and that transparent and robust segregations of duties are in place. This is very important in maintaining honesty regarding reporting and related areas.

Comply with Sarbanes-Oxley

The Sarbanes-Oxley Act (SOX) creates several important provisions and requirements for corporate financial reporting and recordkeeping. SOX keeps companies focused on accountability, transparency, and control. While there are many other provisions, the following two sections of SOX are often the most challenging and costly for companies to integrate into their financial reporting:

• SOX Section 302 – This makes the company’s CEO and CFO legally accountable to the SEC for accurately reporting and documenting revenue. They’re fully on the hook for any slip-ups at the company, giving them a personal stake in ensuring there are no mistakes.
• SOX Section 404 – This portion of the law requires CEOs and CFOs to review and report on their company’s internal structures. They must be transparent about any shortcomings in internal controls.

The payoff for public companies can be significant. For instance, CoreCard (NYSE: CCRD), a growing public software company, needed robust reporting, strong SOX compliance, easier global consolidations, and faster closings across its U.S. and international operations. Today, CoreCard leverages a financial foundation based on an intelligent general ledger, public market reporting, foreign currency management, consolidations, and SOX compliance to help it thrive as a public company. Some of the finance team’s achievements include:

• Reducing the time needed for global consolidations from two days to one minute.
• Incorporating foreign exchange from global subsidiaries – a process that now takes minutes, not days.
• Strengthening SOX compliance through fast, accurate reporting and built-in controls –  all while minimizing spreadsheet work for accounting and finance.
• Freeing the accounting team focus on higher-level reporting and analytics. For example, CoreCard can report on revenue and cost by customer.
• Using dimensions on all journal entries to enable top-down analysis with drill-down paths into customer, product, entity, and region.

In a volatile economy, a modern accounting workflow is essential

As you prepare for an IPO in a volatile economy, it’s more important than ever to build out a comprehensive, modern, and efficient financial and accounting infrastructure that demonstrates to potential investors that your company operates in a productive and effective manner. For more details, check out PwC’s comprehensive guide to making these decisions for building your financial foundation.  An automated accounting system allows allow your company to achieve several vital IPO objectives at once, including:

• Forecasting and reporting accurately and efficiently – These two functions are among the most critical for any public company to perform well consistently – particularly during the crucial post-IPO period.
• Automatically handling your tax structuring, FX, and more – When your company goes public, you’ll suddenly be fielding new issues and obligations. How do you handle FX requirements effectively for non-US investors? What about the changes in your tax status after your IPO? Accounting automation makes this feasible and practical.
• Leveraging an AI-Powered ledger for continuous close – Reopening a previous month’s books to correct a mistake is every publicly traded company’s worst nightmare. With an AI-powered ledger, you can ensure that never happens. And with a continuous close, you’re never trapped in days or weeks of repetitive, low-value tasks that needlessly delay public reporting.

Modern accounting systems help make your company more presentable to investors. But they also tremendously simplify your job as a CFO and bring peace of mind during board and investor presentations. With a strategically minded CFO at the helm, your investors gain confidence that your company’s C-Suite  employees are strategically involved and invested, rather than just passively reporting on numbers.