Prepare for an IPO
Set your private company up for success when it’s time to go public.
IPOs allow the public to invest in and profit from the growth of a company. Many investors are finding that IPOs are a great way to make money, but it’s not for those looking to make a quick buck. The focus of IPOs now is long-term investment.
If you are a private company that feels they could benefit from public investors, there are many steps you need to take. Before you start, however, there are aspect of your company you will need to take a more thorough look at, including your financial plan, the future of the company, and its tax structure.
What is an IPO?
IPO stands for initial public offering. This is the first sale of the stock issued by a company to the public. Before the IPO step, a company is considered private. There aren’t that many shareholders when the company is private, usually consisting of early investors (which are the founders and their network of friends and family) and professional investors, like venture capitalists or angel investors.
When stocks of the company are offered to be purchased by the public, it starts the journey as an IPO. The public is everyone else who wasn’t involved in the earlier stages of the investment process. An IPO is also referred as “going public.”
When a private company goes public, it gives up some of its benefits. This is why many small and medium businesses choose to stay private. One benefit of being a private company is not having to disclose much financial or accounting information about the company. Luckily, it is relatively affordable to run a private company. Large companies can also be private. IKEA and Hallmark are good examples of large companies that never went public.
When it’s time for a private company to go public, it’s understandable there are many concerns on what the steps are. Below, we’ve put together some steps to prepare your company to enter the IPO stage. Like any other financial planning, it’s always a good idea to begin early. Even if you think it’s too early for your company to begin the IPO phase, any CFO can benefit from knowing what to expect.
Are You Ready?
The first, and maybe the most important preparation step you can take is asking yourself if you are ready to go pubic. There are management changes and distractions that will take place during the IPO process, potential liabilities, quarterly financial statements, and so much more that can take up your and your team’s time.
An IPO will also require full disclosure and transparency, as well as adequate visibility into the future of the company with a financial model that shows predictability. You also have to be prepared to give up some control and compromise with new, public stockholders.
If you are ready for this, then you may be ready to go public.
Fiscal Organization Checkup
You’ll want to ensure that the financial operations of your company are trustworthy, which means hiring a well suited controller who can lead the team when the CFO is away. This is crucial because many CFOs often step away from the day-to-day operations. This includes a strong team with an underwriter, a banker, an accounting firm, legal advisors, and an audit firm.
The CFO should be directly involved in hiring the financial team as well.
We highly recommend choosing team members who have experience taking a company public.
Once your company goes public, it is going to be subjected to thorough, rigorous financial examination. Investors want to make sure they are making a good choice. CFOs are challenged to make an IPO plan that expresses the short and long term goals for the company. A company that has gone public will also be required to make real time reports.
Excel sheets and manual accounting won’t be able to report accurately. Instead, the CFO should set in place an automated financial-reporting technology solution. This system needs to be scalable and easily integrated with other systems and include resource planning, business intelligence, customer relations, budgeting, and forecasting.
Public Relations are Key
Having regular and standardized public communications during the IPO process is important. External communication, such as press releases, will help create a good track record.
When the journey begins and the company is on its way to becoming public, it is time to enhance relations with investors. In this step, the CEO and CFO, as well as other management members, should allow financial analysts and investors to inquire about the company.
This presentation is a vital part of making a positive bond between the company and investors. It should include revenue, outlook, net income, and operating cash flows while avoiding promises that can’t be kept and being overly ambitious. The CFO’s involvement in the pricing process is also important, as well as ensuring investors, both existing and future, a solid return on their investment.
Get Your Taxes in Order
Before going public, many CFOs don’t have to worry about the tax issues a public company can experience, but they will have to address these firsthand when they go public. When they do, CFOs should begin to think about IPO tax and valuation issues in order to successfully move into the next phase of their venture.
IPO-experienced tax advisors are highly recommended to adjust financial statements with relevant tax changes.
Alpenrose as an SEC-Registered Advisor
Alpenrose Wealth Management International AG, the sister company of Alpenrose Wealth Management AG, is now a registered investment advisor with the U.S. Securities and Exchange Commission (SEC). Together with our partner Swiss private banks, our company can now offer the full Swiss private banking experience to American clients, both resident and non-resident.
Building on many years of experience in private banking in Switzerland, Alpenrose Wealth Management International AG provides investment advisory services to U.S. clients. Swiss banking is highly regarded around the world, well known for being sophisticated and discreet. In 2017, it was reported that $7.5 trillion in assets are held in Swiss banks, and almost 51% of that is generated from clients outside of the country. Choosing Switzerland as a banking destination is choosing years and years of financial stability and growth.
The advantages of having an account in Switzerland include currency and investment diversification, asset protection, and the possibility to deposit assets in some of the oldest and best capitalized banks in the world.