The benefits of a successful initial public offering (IPO) are as numerous as they are obvious. From new sources of business funding to the capital needed for facility improvements, research and development (R&D) efforts, and attracting and retaining more experienced talent, going public is often seen as the ideal path to greater profitability.
Yet, the decision to take a company public is far more complicated, and even the most successful businesses will face challenges on that journey. These challenges are surmountable, but the success of your IPO will depend on your degree of preparation for increased regulations, documentation, and public scrutiny.
More Complex Financial Reporting Standards
Preparing for annual financial reporting is a rigorous process at any company. Still, it pales in comparison to the labor and expense needed to produce the quarterly reporting required of publicly traded companies. In addition to their greater frequency, quarterly reports demand a more granular approach with a higher level of detail to satisfy Securities Exchange Commission (SEC) standards for public entities.
For many companies, this change requires a fresh approach to accounting. The labor, experience, and other resources needed to adequately produce sufficient quarterly reporting may necessitate an overhaul of your team and processes, advice from consultants, and additional support that increases the cost of staying compliant. While these are all worthwhile investments, they produce financial and logistical barriers to the launch of your IPO.
New Standards for Audits
At a company dependent on private equity, you may have marveled at the intricacies of American Institute of Certified Public Accountants (AICPA) audits. However, just as your financial reporting requirements will intensify when going public, so will the auditing process.
Publicly offered companies must follow more rigorous Public Company Accounting Oversight Board (PCAOB) audit regulations, which call for a higher volume of data and greater insight into an organization’s historical and day-to-day finances and operations. SEC regulations also require strict disclosure agreements that will reveal a wealth of business information to the public, including:
- Outstanding loans
- Sources of debt and equity financing
- Compensation packages for senior management
- Other details about operations
This degree of transparency opens you to numerous challenges, from pressure on management to meet projections and profit goals to lawsuits from stakeholders who may raise critiques of everything from operational planning and decision-making to executive compensation.
Greater Scrutiny from the Government and Public
An in-depth view of a business’s financial status affects more than stakeholder relationships. Successful financials, glowing public perception, and adherence to the regulations associated with launching an IPO can all bolster your cash flow and open new doors to business funding. Despite this, increased scrutiny often brings the opposite effect. Every downturn is available for public review, and every decision is laid bare for government regulators and future investors alike.
First, prepare for a new level of insight into all internal controls. Executive leadership will certify that these practices are sound, but outside entities may disagree. Perhaps even more importantly, financial reports, audit findings, and other required disclosures have a significant impact on your ability to access capital and fuel growth.
If your IPO thrives, this could be a positive factor in generating capital and acquiring credit. In contrast, a negative perception of your financial health and operations may reduce the company’s ability to obtain debt capital and diminish cash flow.
Prepare to Go Public with Flexible Business Funding Solutions
With these hurdles in mind, any business preparing to go public must ensure its finances and financial documents are in order. This requires a diverse assortment of funding and the support of a trusted financing partner who understands your company.
Collecting these diverse types of funding from banks and traditional lenders can be highly complex and time-consuming, adding challenges for companies already working at maximum capacity and delaying the launch of their IPO. Changes to your business and the market may reduce the potential for the launch or even stall it altogether. A relationship with a non-traditional lender can offer highly customized solutions and streamline the lengthy processes associated with capital acquisition for many businesses.
LDQ Business Finance offers flexible business funding solutions to meet the unique needs of every client as they move toward going public. LQD Business Finance’s dynamic, fully customized solutions utilize a tech-enabled platform and end-to-end data integration to provide working capital for the highest degree of efficiency and transparency. What’s more, LQD Business Finance’s team of analysts and experts is always available to answer questions and provide support, ensuring you’re well prepared for increased reporting requirements, rigorous audits, and all the other challenges you’ll face as you transition to a public offering.
To learn more about LQD Business Finance’s forward-thinking approach to capital financing, contact us today.