The CFO's role in IPO preparations

Initial public offerings or IPOs are among the significant milestones for a company as it transition to one open to public investment from being a privately held entity, and the chief financial officer play an important role for the journey's success.

Mayank Gupta, CFO at India-based digital automotive solutions provider CarDheko Group, talks on what role financial leaders play in making sure that the company is IPO-ready.

Financial preparation

Effective financial preparation for an IPO is paramount and involves multiple critical aspects. Gupta believes that the CFO must meticulously review the company’s financial fundamentals to address any vulnerabilities in its structure, ensuring that financial statements, cash flow management, and debt structures are rock-solid.

To instill trust in potential investors, the CFO’s second crucial task is building proficient finance teams across various functions. These include controllership, Financial Planning and Analysis (FP&A), Investor Relations (IR), financial operations (FinOps), business finance, tax, treasury, and more. 

These teams must excel at their roles and prioritise continuous training and development to meet the high standards of transparency that investors expect.

Furthermore, an efficient Enterprise Resource Planning (ERP) system is the backbone of the company. It promptly provides trustworthy and detailed financial information, a key factor in fostering investor confidence. Besides, strengthening financial controls is imperative. 

CFOs must uphold compliance with accounting standards and take a cautious approach to accounting positions, often providing additional disclosures in situations with any potential for debate. 

Long-term revenue growth

In the pursuit of long-term revenue and profit growth, the CFO takes on a central role. 

A crucial aspect of the CFO’s role is benchmarking the company’s profitability against both local and global peers. Through this benchmarking process, gaps and opportunities for improvement become apparent. It’s not sufficient to merely maintain profitability; the CFO’s mandate is to drive the company towards achieving industry-standard or superior profitability, with compounding growth rates that outpace revenue compounding. 

Simultaneously, the CFO conducts meticulous reviews of costs, identifying levers for expense optimisation to align with monthly and quarterly margin targets. 

Moreover, the CFO delves into an in-depth analysis of revenue, dissecting it by various segments and cohorts. This deep dive uncovers key areas and insights that contribute to achieving the coveted growth targets. 

The finance leader also works on the creation of disciplined operating rigour in collaboration with operating teams to ensure that teams are held accountable and consistently deliver on promises, thereby upholding a high say-do ratio, further enhancing the company’s growth narrative.

Custodianship of shareholder money

As the custodian of shareholder funds, the CFO plays a pivotal role in making critical decisions about capital allocation, including aligning reinvestment, dividend distribution, or share buyback choices to maximise shareholder returns. 

Vigilant monitoring of the return on capital for all forms of investments – whether organic or inorganic – also underscores the CFO’s commitment to sound financial stewardship.

Furthermore, Enterprise Risk Management (ERM) is a cornerstone of the CFO’s responsibilities. They are tasked with spearheading the development and execution of an ERM strategy that embraces proactive risk management. This comprehensive strategy encompasses emerging risks such as cybersecurity and evolving customer and competitive trends. 

Additionally, beyond managing the company’s finances, the CFO is critical in upholding world-class corporate governance standards beyond managing the company’s finances. Central to this mandate is championing the Environmental, Social, and Governance (ESG) charter and cultivating a robust compliance team. 

Positive branding

A critical facet of preparing a company for an IPO is the proactive engagement with investors. Gupta bleives that the CFO’s role extends to fostering a favourable image of the company, encompassing its business, activities, management, and performance. Beyond mere numbers, investors seek assurance in the people guiding the company, making the CFO’s role in creating this trust of paramount importance.

Building and nurturing relationships with an array of stakeholders, including auditors, the Board of Directors, shareholders, bankers, partners, and others, is also a central responsibility of the CFO. Trust forms the bedrock of these associations, with the CFO assuming a pivotal role in its establishment. 

Furthermore, the CFO collaborates with the Chief Human Resources Officer (CHRO) to cultivate a meritocratic culture within the organisation. This inclusive culture encourages employee engagement and responsible conduct, transforming them into brand advocates and bolstering the company’s long-term sustainability.