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By Mike Whitmire

Despite the tumultuous economy we’ve experienced over the past few years, the IPO market may be starting to turn a corner. While a plethora of companies went public in 2020 and 2021, the number has recently declined due to rising interest rates and inflation. However, as the economy slowly begins to stabilize, we’re seeing things shift once more.

I’ve worked alongside several companies as they go public — including tactical, hands-on work auditing every single transaction from the start of one company’s life. This work provided insight into key hires, sales deals and other critical strategic factors that greatly contribute to a thriving IPO.

In my experience, I’ve found that there are several key steps that must be followed to ensure operations are efficient and buttoned up — especially in terms of compliance — and a few red flags all companies should be on the lookout for.

The Unofficial IPO Checklist

As the IPO market picks up and companies prepare to go public, there are certain steps companies must take to ensure the process goes smoothly and successfully. This is my three-step checklist for a thriving IPO:

1. Evaluate your team 

First things first, make sure you have the right talent on board to go public. Not only should your team be ready and eager to go through the IPO process, but they should be prepared for a shift in the workplace once the offering goes through. A post-IPO workplace is vastly different from a pre-IPO workplace.

2. Build the right capitalization table 

Secondly, prior to going public, it’s important to ensure that the capitalization (cap) table — the breakdown of a startup’s ownership structure — isn’t too heavy with one investor. Especially as we’ve seen some investors dump the stock after the company goes public, it’s critical to get the right investors around the cap table who will be long-term supporters and stockholders.

3. Get your compliance in order 

Lastly, and perhaps most importantly, it’s critical that companies make sure their compliance is in a good place.

Before even jumping into IPO planning, leadership should allocate budget and resources toward compliance. It’s a big project that takes up time and resources but is critical to the process. For example, technology is a massively helpful investment for navigating the compliance process, especially as the process can be tedious and error-prone. With the right tech implemented, companies can streamline the way they work and button up their compliance.

Further, companies should consider hiring someone both internally and from an external consulting firm. Compliance should be done by the experts and outsourcing ensures that controls are established and the business is fully analyzed.

Finally, when working on compliance, it’s important to lead with empathy. Controls are hard to get used to, especially as employees begin implementing new IPO-specific practices. If you empathize with the staff, it will be easier to get people on board and easier to get compliance in order.

Watch out for the investor red flags

Even following the unofficial checklist, there are a few things investors have a keen eye for that every company should be aware of. First, many are on the lookout for how long it takes a company to close the books and share the financial information needed at the end of the quarter. At FloQast, we give investors a flash update the first day after the quarter ends so they feel good that we’re on top of our numbers, and provide them the full information later on.

Second, many investors look at whether or not you are doing audits and/or comprehensive reviews. At the very least, companies should be doing a control review in order to find any weaknesses. Even though audits can be tedious, it’s important to go over everything and maybe even work with auditors and CEOs to sift through materials.

At the end of the day, teams should also keep in mind that not all material weaknesses are created equally. Be sure to decipher what you actually need to worry about in the context of your own company.

Making the most of the IPO market

Amid economic turbulence, the IPO market is rebounding. For those who don’t see a slowdown in growth over the next year, it’s especially important to prepare as your IPO is likely coming sooner than you think.

However, we all must remember that the market can be volatile. As such, it’s crucial that leadership take the appropriate steps to ensure that everything is in order before going public. By evaluating team readiness, optimizing ownership structures and ensuring compliance, companies can chart a course toward a successful IPO, aligning business with a dynamic market primed for growth.

A former accountant turned entrepreneur, Mike Whitmire is the co-founder and CEO of pre-IPO fintech company, FloQast, which uses technology to improve the lives of accountants and finance professionals. FloQast’s mission is to automate the accounting industry to reduce monotonous and time-consuming tasks and empower employees to focus on strategic initiatives.

Illustration: Dom Guzman

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