Many private firms consider an initial public offering (IPO) as a strategic option for growing their business. But this process is complex and is a risky one. It requires a meticulous plan and strategic planning to ensure long-term success.
To prepare for an IPO the first step is to formulate and communicate your equity narrative. This will convey to investors how you intend to create value and explain how your company is differentiating itself from the competition. This is crucial to establish a compelling valuation and getting the attention of investors, underwriters, and analysts.
The next step is evaluating the leadership team and management. An IPO is a risky business which is why you need to ensure that your management team is able to handle it. For instance an IPO can bring on additional financial reporting requirements as well as tax implications, which could require adding a finance or tax specialist to the executive team. It is also necessary to decide whether to have dual class stock, which gives founders and other executives different voting rights.
A strong track record of financial accountability and control is crucial for an IPO. This includes having a well-defined SOX program, which should be in place and regularly updated prior to the IPO. It is also essential to examine your current system of records. This includes capitalizations files, minutes material agreements, historic option grants. This is vital for ensuring that you meet SEC requirements and bank underwriters. You must determine whether your company has “material weaknesses” so that you can fix them before going public.