2018 has been a momentous year for IPOs in the United States.
To date, 211 companies filed IPOs, generating $44.8 billion in proceeds, according to Renaissance Capital. This represents a 34.2 percent increase from 2017, where 196 IPOs accounted for $35.5 billion in proceeds.
If you’re a corporate controller at a company heading down the path to an IPO, there’s a lot to prepare. We put together a few handy tips for taking the next step.
A roller-coaster ride
“It’s certainly fair to say that it was a roller-coaster ride—sometimes hour by hour — and it took a lot of work and dedication from a lot of different people,” said Scott Paterniani, CPA, vice president and corporate controller at Wheels Up. In 2014, Paterniani was a corporate controller at Borderfree Inc. when the company went public.
Having assisted several clients through the IPO process while working at Grant Thornton helped Paterniani during his first IPO as a corporate controller. Hired by Borderfree in February 2013, he played a key role throughout the e-commerce technology company’s IPO journey.
“[That previous IPO experience] with former clients allowed me to go into Borderfree confident in knowing what to expect: the financial reporting and internal control requirements; the challenges of SEC reporting; scaling an accounting and financial reporting team to meet the requirements of an SEC filer; the ups and downs of the IPO process; the cadence of the deal; managing different personalities, both internally and externally; and providing guidance and support to other finance functions and other departments throughout the project,” Paterniani said.
“Additionally, having an intimate understanding of the processes and procedures from the public accounting side of an IPO really added value to the project, in my opinion,” he added. “I was able to anticipate questions, concerns, and procedures from our audit firm, which certainly helped our preparedness throughout.”
While it’s unlikely you will ever work on a project that will have such a wide range of ups and downs, Paterniani said, you’ll feel “…a tremendous amount of pride and accomplishment when the company goes public.”
Advice for first-time IPO controllers
Paterniani and three other controllers who have been through the IPO wars offered the following tips for controllers embarking on their first IPO experience:
- Research the IPO process. “If you have not gone through an IPO, brush up on what is involved, who the players are, and what pitfalls have trapped others,” said Britt Jeffcoat, CPA, a former public company chief accounting officer and current financial consultant, who was senior assistant controller at JP Energy Partners in Irving, Texas when it went public in October 2014. “You will not be able to anticipate every challenge that arises, but being prepared for the more common issues will improve your ability to take on the unanticipated problems.”
- Go through an IPO readiness assessment. “IPO processes can be a grueling experience due to multiple demands on your time. Management, external auditors, and internal auditors all want something from you. I cannot stress enough the importance of IPO readiness efforts,” Jeffcoat said. “The demands on your time can be more readily addressed once the organization’s fundamental processes are aligned to its end game. If you can routinize your financial reporting, your SOX internal controls, your monthly close process, etc., with a mind to behaving like a public company, you will have already fought much of the battle.”
- Make sure your financial house is in order. “The controller should be getting ready [for the IPO] at least two years in advance because the condition of the financial data is going to be the key to getting minimal questions back from the SEC,” said Robert Day, CPA, CMA, CGMA, corporate controller at KeyW Corp., a Hanover, Md.-based provider of national security solutions that went public in October 2010. “The controller should clean up any purchase accounting issues and confirm that all acquisition data has been integrated into their accounting system appropriately.”
He also recommended making sure your financial reporting systems can replicate statements or schedules that were included in the SEC Form S-1 so that you can provide comparable data as you move forward, at least for the first year.
“Because you do not have a track record yet, the only thing investors have to compare you against is what you told them in the S-1,” Day added.
Prepare your team
- Read and study S-1 filings of other companies in your industry. “Look at the SEC comments on those filings so you have a good understanding of what the SEC is looking for and so you have an idea of how previous years’ financial data needs to be presented,” said Day, who was vice president and controller at SI International in McLean, Va. when it went public in November 2002. “In the situation where the accounting system would not support what you need, it gives you time to go back and modify your data or your reports so when the time comes, you are prepared to respond quickly.”
- Scale and strengthen your accounting and financial reporting function. “When adding talent to the team, if you think you need someone with four or five years of experience for a role, find someone who has seven or eight years of experience,” Paterniani said. “If you are going to miss on a hire, always miss by hiring someone with too much experience.”
- Utilize everyone on your team. “While a controller is going to be playing a key role in most every aspect of the IPO, it is your responsibility to make certain that each member of your team feels as though they own a part of the process,” Paterniani said. “This could be the only time in the careers of most of your team that they will participate in an IPO. Keep everyone involved, keep everyone dialed-in, and at the end of the project, your team will have a renewed sense of togetherness and they will be ready to move forward as a high-functioning public company accounting and financial reporting team.”
“Additionally, your goal as controller should be to prepare every one of your team members to take on more responsibility and move up the ranks at your company, or prepare them to take on larger roles outside of the company when they are ready to move on,” he added.
Transparency is key
- Get along with your team. “You will be spending hours, days, weeks, and months together. Be kind and respectful. Realize that everyone has a breaking point—don’t push them to theirs,” said Cary Morgan, corporate controller at Utah Tank & Trailer, a West Valley, Utah-based company that specializes in tanks and equipment, who was vice president corporate controller at Chordiant Software Inc. in Cupertino, Calif. when it went public in February 2000.
- Be open, honest, and get things right. “No one wants a class-action lawsuit,” Morgan said. “Don’t be afraid to ask questions, be able to support your position with facts, be humble enough to admit you are wrong if you are, and give praise when it is merited.”
- Don’t sweat the small stuff. “Having worked on half a dozen IPOs over the years, no IPO is executed perfectly or to plan—but that is the beauty of it all,” Paterniani said. “As issues and challenges arise, take a step back, figure out how to address the issue, make the appropriate corrections, quickly figure out how to avoid similar issues in the future, communicate that to the team, and move on. There are always more important things to get done.”
- Maintain some balance. “Don’t forget your personal life,” Jeffcoat said. “The proverbial work/life balance will likely need to be out of alignment during the IPO, but you shouldn’t completely sacrifice the personal components of your life that make you who you are.”
If you and your team are gearing up for the challenge of preparing for an IPO, download our Controller’s Guide to IPO Readiness: Critical Considerations for You and Your Team.
This article appeared first on Going Concern.