Page 146 - Initial Public Offering - An Introduction to IPO on Wall Street
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7.3.1 Sign 1: Ability to Accurately Forecast Financial Performance
Accurate financial sales and expense estimates are a key part of a business plan and play a key
role in the performance of a business, especially as a public company with institutional
investors. Missed forecasts can have a huge effect on the value and capacity of a business to
again generate debt or raise equity capital.
The creation of reliable forecasts and budgeting processes while your business operates
privately is therefore an important step in demonstrating the quality and integrity of your
financial reporting to gain investor trust.
During the IPO process, you will be expected to share past financial reports and projections. A
specific number of years for which you should have audited documentation may be suggested
by the underwriters of your business.
7.3.2 Sign 2: Having the Right Executive Team in Place
The team that has guided your business through its rapid development until this point may need
to evolve to lead the business once it is public. Do you have experience with public corporations
in your C-Suite? Are they the team that will push productivity to the next level?
When it comes to expanding and adding new staff to the company, organizing the
organizational structure before going public will help add continuity and effectiveness. It is
necessary to think about the structures of your team, duties, and responsibilities, and reporting
lines before conducting your IPO.
For instance, you’ll probably want to concentrate on growing the accounting and finance
personnel and perhaps establish a stronger focus on external communications. Your investor
relations (IR) team is one specific area that you would not have had to think about as a private
corporation.
However, as a public company, you would want to have in place an accomplished investor
relations officer or maybe an IR consultant, along with a strong IR infrastructure that allows
your business to connect with the market effectively.
7.3.3 Sign 3: Audit-Ready Business That Regularly Closes Its Books on Time
You want to be able to close your quarterly financial reports reliably on time before going
public. Even private equity and venture capital-funded businesses that communicate
periodically to their board and sponsors will find the additional attention to detail needed to
prepare full financial reports daunting at the start.
Going through this activity in advance helps you prepare for public reporting responsibilities
and may reveal requirements for additional staff for disclosure, internal controls, or other areas
relevant to financial planning and review.
You'll be subject to routine accounting reviews as a regulated public corporation. To be
prepared, it is a good idea to perform several internal audits before the IPO. By reviewing the
financial reports and internal controls, the auditor can find any potential problems and
recommend suitable solutions.
7.3.4 Sign 4: Having Realistic Valuation Expectations
Your value will be affected by the price/earnings of some of your publicly traded peers as your
business enters the public stock market. To help you set reasonable goals, your financial
backers and underwriters will assess the valuation landscape.
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