Is Your IPO Delayed? Here’s What to Do
In the current business environment, some companies are choosing to delay their IPO plans in hopes that the markets will shift over the next year or two and allow them to launch in fairer economic waters.
Startups that devoted much of the past few years to preparing their organization for an IPO are finding that their hard work came to naught, at least for the time being.
However, a delayed IPO doesn’t mean you won’t go public in the future. If anything, it gives you more time to prepare your organization for what’s to come. That can be a tremendous opportunity, especially if you handle it correctly.
Here’s what to do if your IPO plans are currently on hold.
1. Remember That the Market Is Cyclical
There are always ups and downs in the stock market. Shares can fall as much as 20% to 30% in tough economic times, but they always come back up. In some cases, they can come back stronger than ever.
While you may be dealing with a company valuation that is lower than anticipated, that will likely change. So:
- Use your time wisely and get your financials up to snuff.
- Cut back on unnecessary expenses and show that your company has future earnings written all over it.
This is an excellent time to shore up balance sheet issues, particularly current assets and liabilities. If you have any slow-moving receivables,
implement new strategies that will get your customers paying on time. Try to shore up your cash balance as much as possible — you will have to rely on it until you can obtain the equity influx you need to scale the organization.
2. Get Your Equity Administration Vendor on Board
The equity administration vendor you choose is a significant part of the IPO process. They will manage the IPO process, conducting due diligence on your organization to ensure it’s fully prepared to issue new shares to investors.
When your IPO is delayed, it can be easy to sit back and deem the equity administration process less of a priority. However, that’s a poor assumption, and it may cost you a lot of time when your IPO advances.
Instead, ensure that the conversion process is running on all four cylinders, so you’ll have a smooth future transition. You’ll have less to worry about if your equity plan’s administrators understand your vendor’s operating platform and know how to run it.
You’ll also need to have your IPO data ready to streamline the public offering process. Ensuring you have the proper controls, like SOC 1 and ISO 27001, will reduce the chances of encountering any unexpected hiccups.
3. Make Sure Your Employees Know What to Expect When the Big Day Comes
An IPO will completely change your workplace culture. No longer will your team operate under your leadership alone; their activities can also come under the scrutiny of shareholders and regulators. Public companies must adhere to a multitude of regulations that may be entirely new for their employees.
For example, if your accounting team is used to a single annual review with auditors, they must prepare for quarterly accounting reviews and a major year-end audit.
If your employees lack the credentials or expertise to keep your books in shape, now’s the time to hire CPAs, tax professionals, and other team members who can guide your current team and ensure you’re fully compliant.
Many of your employees may expect a big bonus when your company goes public, especially if you’ve provided them with percentage ownership in the company.
While a delayed IPO can adversely affect their financial plans (at least for the near future), you can begin educating them on how IPOs and stock ownership work and what they can expect when the IPO finally occurs. Your less financially savvy employees will appreciate the insight you provide.
If you have executives who stand to benefit enormously from the IPO, they may need to learn how to handle their new wealth. Consider partnering with vendors who can provide financial advice and assistance for your workers who will benefit financially from the IPO.
4. Finalize Your Company’s Compensation Strategy
When you have a public company, you can provide your most valued employees with stock options and other equity benefits that encourage them to stay on for the long term. However, equity compensation isn’t straightforward. Many forms of equity compensation extend past simple stock ownership into more complex territory.
You can also decide what you plan to offer new employees who aren’t part of your organization’s IPO. Your post-IPO equity compensation plan should align with your IPO strategy and not create additional roadblocks that could cause legal issues.
Your company’s board of directors will expect compensation for their new roles as overseers of the organization’s operations and compliance activities. If you haven’t outlined what you plan to pay them, now is the time to do so.
Finally, employees often appreciate the opportunity to purchase additional shares through employee stock purchase plans (ESPP). If you establish your ESPP before the company goes public, you won’t need to seek shareholder approval to implement it.
5. Consider Debt Financing
If additional funding to support your business operations can’t wait for an IPO, debt financing may be an alternative to consider. To qualify for debt financing, you’ll need the proper infrastructure setup. That means a solid balance sheet, a forward-looking business plan, and the means to support future interest payments.
While banks are pulling back from large-scale debt financing in the current financial climate, that doesn’t mean your company won’t qualify. With the right tools in place and strategic marketing, you can likely show lenders that your company is a worthwhile investment that will pay off.
A Delayed IPO May Be Disappointing, but It’s Not All Bad News
While it may not be the right time to take your company public, a lot can change in six months or a year. Stick to your objectives and take action to prepare your business and employees for what’s to come. A little bit of preparation can make the IPO process much easier when it’s time to strike.
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