What is IPO Readiness & How Best to Prepare for an IPO

What is IPO readiness?

IPO readiness refers to a privately owned company’s preparation to offer ownership equity to public investors by selling stocks on a public exchange. This process, known as an Initial Public Offering (IPO), is a pivotal moment that injects financial resources for growth but also subjects the company to increased scrutiny from regulators, investors, and the public.

When is a company ready for an IPO?

A company might consider an IPO when it has a unique product or service and is poised for significant expansion requiring additional capital. Executives need to thoroughly evaluate the market, competition, and potential for substantial near-term growth to attract public investors.

Company valuations have changed radically over the past 5 years, with a meteoric rise and then fall. However, most companies start to consider going public when they have reached unicorn status, which is a valuation of $1 billion or more. Data suggests that the average market cap for companies at the time of going public was $1.54 billion.

IPO readiness checklist.

1. Establish robust and scalable financial processes: Ensure your financial systems are mature and automated to support growth effectively.
2. Mitigate risks impacting business continuity: Identify and mitigate risks that could delay the IPO or cause reputational damage.
3. Assemble a trusted IPO team: Have an experienced team ready to guide the company through the IPO process.
4. Implement clear financial controls: Develop financial controls to prevent fraud and misuse, protecting future shareholders by identifying suspicious activities.
5. Ensure compliance with audits and regulations: Be prepared to meet quarterly reporting requirements and adhere to market-specific regulations, such as the Sarbanes-Oxley Act (SOX).

Why IPO readiness matters to Finance and Accounting (F&A).

IPO readiness is important for F&A because it requires significant changes in financial processes and controls:

Timely audited financial statements: Companies must produce accurate and timely financial statements to meet regulatory requirements and inform investors. A minimum of two to three years of audited financial statements are required to go public depending on filer status.

• Experienced F&A team: An experienced team of finance professionals is essential to guide the company through the IPO process. CFO role: The CFO plays a critical role in ensuring the company’s financial health and readiness for the IPO. Often a new CFO with IPO experience is brought in to usher the company through the process.
• Internal controls and technology: Establishing strong internal controls and appropriate technology infrastructure is vital to support the transition to a public company.

Being prepared for an IPO not only facilitates a successful public offering but also strengthens the company’s internal processes, governance, and market competitiveness. Thorough preparation and strategic planning can lead to sustainable growth and long-term success as a publicly traded entity but it can also contribute to a company’s success at any time.

Delaying an IPO in volatile markets.

During times of market volatility, such as in 2022, postponing an IPO is often a prudent choice. However, this delay should not halt the preparation process. Companies opting to delay their IPO should use this period to refine their financial processes.

According to a 2022 global survey of 562 finance decision-makers from organizations with revenues between $250 million and over $1 billion, nearly 80% of rapidly growing companies have postponed or are planning to postpone their IPOs. Most delays range from 6 to 18 months.

How Airbase can help in IPO readiness.

As a company prepares for an IPO, it will need to create scaleable processes that are supported by enterprise-grade systems. The due diligence efforts that a company is subjected to will look for poorly designed processes that subject the company to risk and inefficiency. The auditors will be relied on for opinions about how effective, efficient, and robust financial controls are.

Investing in the right procure-to-pay platform, such as Airbase, provides a level of control over the significant risks in the accounts payable process not found in other systems. In addition to control, its automation generates meaningful efficiencies and frees finance teams from low-value manual tasks, allowing them to focus on strategic activities. Additionally, Airbase’s additional levels of fraud protection help avoid the need for public market disclosures.

Having a dedicated spend management platform like Airbase paves the way for a successful IPO. It enables scalable financial processes, provides full visibility into spending and cash flow, and ensures compliance with relevant regulations. Airbase’s P2P platform supports companies beyond IPO, helping them scale effectively and providing valuable business insights through AI-driven spend intelligence.