Preparing for an IPO

If your company is seeking capital to fund new project, you may have considered filing for an initial public offering (IPO). Many companies value this fundraising opportunity over others because it increases company exposure in the marketplace. While there are many benefits of going public, those considering this option need to take note of the drawbacks associated with the scrutiny companies undergo in the vetting process.

The steps required to lay the groundwork for an IPO are complex and costly. In a 2012 PwC analysis of the costs associated with filing an IPO, the consulting firm studied the fees associated with meeting SEC requirements before and after filing an IPO. It attached a $1 million price tag to fees assessed to companies in hiring accountants, underwriters and attorneys to review the company's records and file the necessary paperwork.

While your company's CEO may make the decision to take a company public, the CFO may be individual responsible for shepherding the company through the process. These are three considerations the CFO may need to make in order to ensure transparency before and after filing:

1. Review and improve accounting practices.

Before the SEC will allow a company to sell its stock to the public, the company needs to open its records. Those tasked with the auditing process review past financial activity. Other individuals focus on financial estimates to identify short-term targets and establish long-range objectives. Once the IPO has been filed, publicly traded companies are also required to provide earnings reports on a regular basis. A CFO is responsible for streamlining and overseeing these accounting processes.

2. Prepare for new tax obligations.

Accompanying the IPO status are new tax requirements. In order to ensure compliance with tax regulations, the CFO should hire advisers with experience in handling IPO-related tax issues. Such advisers can also review the company records to search for areas within the company that can create future tax liabilities. In establishing the value of the company, these individuals can develop a strategy for handling capital once company stock is on the market.

3. Create an advisory council.

With the passage of the Sarbanes-Oxley Act, regulations that have created safeguards for the public have done so at the expense of efficiency in filing an IPO. CFOs are advised to seek council of other CFOs who have successfully directed an IPO. In many cases, other CFOs will have a network of support that they can recommend. Lawyers, bankers and accountants who have filed in the past can provide valuable information about establishing a schedule for disclosing relevant information, completing risk assessments and automating accounting.

While the benefits extended to publicly traded companies are numerous so are the hazards. It is for this reason that companies interested in filing for an IPO should seek the advice of a knowledgeable business attorney.

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