For many entrepreneurs, an initial public offering (IPO) represents a significant milestone or growth opportunity. The potential rewards can be substantial.
However, navigating the path to an IPO can be complex and demanding, requiring significant planning and preparation.
Undoubtedly, it is crucial for any company considering an IPO to thoroughly prepare before embarking on such a significant endeavour.
“A successful listed company is well-run, has a well-defined business model that generates strong financial performance and is well-understood and trusted by the investing public. The rigour of the IPO process requires the company to re-evaluate and refine its strategy and processes and helps it attain the high standard of financial reporting and corporate governance required of a listed company,” says Joshua Ong, managing partner & practice leader for capital markets & IPO at Baker Tilly Singapore.
Business Potential
Attracting investors hinges on effectively communicating the value proposition of your business
This entails highlighting factors such as the market potential for your product or service, your unique competitive advantage, growth projections, scalability, and the competence of your team.
Investors are interested in a company's past achievements. However, investors also seek companies with a compelling value proposition, strong growth potential, and a clear path to creating shareholder value. A crucial part of the pre-IPO process is the ability to clearly and credibly communicate your equity story, showcasing the business’s potential and future plans.
Capable management team
The process of taking a company public and managing its operations post-IPO places considerable demands on the management team's time and attention. Key executives are heavily involved in tasks such as financial reporting, legal due diligence, and internal control review.
Given these demands, it is common for management to find themselves stretched thin, potentially neglecting the day-to-day operational needs of the business.
To navigate this challenge effectively, management must prioritise tasks, delegate responsibilities efficiently, and receive robust support from a competent project team.
Additionally, companies may consider hiring additional resources or external advisors to help manage the workload related to compiling financial and operational information required for the IPO and implementing internal control processes.
The board of directors and senior management should possess the appropriate credentials, thorough knowledge of the business, and considerable experience and expertise.
Financial track record and financial reporting requirements
Financial statements are required to be prepared, generally for the three years’ historical operating track record, by the respective local financial reporting standards (FRS).
However, international FRS is also acceptable to many exchanges.
Consequently, many companies will need to retrospectively analyse their past financial results to align them with the relevant accounting framework.
For many private companies, substantial investments in time and resources are necessary to establish and formalise financial reporting processes and internal controls to ensure compliance with financial reporting standards and other financial reporting requirements.
This undertaking can pose a significant challenge for the finance team, especially when balancing it with their ongoing responsibilities within the finance department.
It is critical to have professionals in the finance department who are conversant with the financial reporting and internal control requirements and expectations of a public company. They should be capable of efficiently executing the company’s comprehensive plan, especially under accelerated timelines.
Corporate governance and internal controls
Enhancing corporate governance and internal controls are critical components of the IPO process.
Companies preparing for an IPO must prioritise these areas to mitigate risks, enhance transparency, and build credibility with investors.
Further, companies are advised to evaluate existing governance structures and control processes to identify areas for improvement. It is also important to strengthen the role of the board in overseeing the IPO process and governance practices.
Additionally, enhancing internal control frameworks is crucial to ensure the integrity of financial reporting and compliance with regulatory requirements.
In conclusion, the decision to pursue an IPO is a significant milestone for many companies, presenting the prospect of growth, increased public awareness, and potentially substantial rewards. However, the journey to an IPO and the path beyond are fraught with challenges and complexities.
It is highly advisable for private companies preparing to go public to:
(i) Conduct a pre-IPO readiness assessment which helps identify any gaps, weaknesses, or areas requiring improvement, enabling measures to be undertaken to address issues before initiating the IPO;
(ii) Develop a plan and timeline to minimise delays, and maximise efficiency in meeting critical milestones; and
(iii) Engage experienced professionals, such as legal advisors, underwriters, auditors, and financial advisors to ensure access to expertise and guidance necessary for navigating the complexities of the IPO process successfully. These measures help ensure preparedness, efficiency, and successful execution of the IPO.
