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Preparing for an IPO in Today’s Economy 2023

It’s no secret that business, as a whole, has taken a beating over the past few years. Concerns about a recession and ever-rising inflation rates have CFOs across the country worried. The Federal Reserve has fought hard against recession fears, increasing interest rates nine times since March of 2022, all in a bid to tamp down inflation and steady the economy.

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The rise in interest rates, however, makes it much harder to find low-cost financing, and inflation just makes everything more expensive. The sudden collapse of Silicon Valley Bank and Signature Bank in early 2023 has incited further worries about the soundness of the U.S. banking system.

Unsurprisingly, CFOs are tightening their budgets and eliminating excess spending, battening down the hatches to secure their companies from economic headwinds and waiting to take any major initiatives, like IPOs, until they see signs of recovery.

IPOs Declined by 82% in 2022

Evidence of CFOs’ reluctance to launch significant changes to their business structures is evident in the recent decline of IPOs. In 2020, there were 480 new IPOs, and that number skyrocketed to 1,035 in 2021, but by 2022, there were only 181 new IPOs — an 82.5% decrease year over year.

The decline in IPOs is likely due to the shaky economic climate. The stock market has been volatile since November 2021, when the NASDAQ Composite reached a high of 16,057. Today, it’s hovering around 12,000.

While the market may not be ripe for an IPO right now, that doesn’t mean it won’t be in the future. Economic difficulties tend to be cyclical, and downturns don’t last forever. As such, it’s critical to start preparing for an IPO now, so you’ll be ready to strike when the iron’s hot.

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It Takes Time to Prepare for an IPO

Most companies can’t simply fill out a few forms and become public organizations. Public companies must comply with extensive regulations to ensure they don’t run into legal trouble, and setting up the infrastructure for a public company can take several years, especially for smaller organizations.

The first step to preparing for an IPO is to develop a strategic roadmap for the future that will attract investors who believe the company can achieve its objectives. The roadmap should extend for at least five years and establish reasonable goals for the organization to work toward.

Next, the CFO will need to get a handle on its financial forecasts for the next few years. These should be detailed and thorough, identifying anticipated revenue and expenses so that potential investors know what to expect. It’s not enough to simply take the last few years’ financial statements and make predictions: Instead, the CFO must partner with all stakeholders in the organization for each line item in the forecasts and be ready to explain them to investors.

The CFO must also rally potential investors to prepare them for the IPO, which means meeting with entities and people who express interest in the company’s future and want to participate in its IPO. CFOs will need to showcase their strategic roadmap and financial forecasts in a bid to get them on board with the IPO.

Regulatory Compliance for IPOs

When a company becomes public, it must have the proper infrastructure and controls in place to ensure compliance with strict government regulations.

For instance, public companies must report both quarterly and yearly earnings on an ongoing schedule, and before releasing their earnings, they must undergo a thorough audit or review. Non-public companies typically only undergo annual reviews with their auditors. Quarterly reviews are optional, and the expense and administrative headache usually outweighs the benefits.

The type of audit required by a public company review differs entirely from a private one. Public company audits must comply with the Public Company Accounting Oversight Board (PCAOB), which is far more strict than a general audit. CFOs must ensure they have qualified accounting staff with experience handling PCAOB audits to minimize the risk of problems.

Preparing for an IPO is not only expensive but also time-consuming. Getting all your ducks in a row for an IPO can take six months to a year, sometimes longer. You’ll also likely need to hire new people to assist you and find qualified external advisors, like audit firms and regulatory experts, and finding the right people to support you will take time. You’ll likely need to interview dozens of candidates and entities before you identify the people who best suit the needs of your organization.

You may also find that you need to upgrade your technology to accommodate your new compliance requirements. Moving to an ERP system or another type of accounting software will take time and effort and likely come with a learning curve. Before taking it live, you’ll need to ensure the transition is smooth and you’re fully confident in its setup.

Find the Right External Advisors

If you’re new to the IPO process, hiring external advisors who can help you through the process is critical. During an IPO, errors can prove costly and may scare off the investors you retain, so while advisors may be expensive, their assistance can help you avoid serious mistakes that could delay or hinder the IPO process.

Ideally, you should hire advisors with extensive IPO experience in your market sector. They’ll help you avoid pitfalls that could harm your organization’s goals.

Use the Time to Strengthen Your Organization

While 2023 may not be the year for bringing your company public, that doesn’t mean that 2024 won’t be. If you think it’s time for your organization to take its next step forward, starting the preparation process now is critical. You can get your finances in order and ensure you have qualified staff on board with expertise in public accounting.

If your current technology warrants a change, look for ERP or accounting systems with the features you need to comply with a PCAOB audit. You’ll also need to find suitable external advisors and auditors who can advise you during the entire process. With the proper infrastructure, you’ll be ready to take your company public when it’s time.

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Our hands-on CFO executive recruiters have experience working with private, public, pre-IPO, and non-profit organizations. Clients are typically $50 million in revenue to Fortune 1000’s or have assets between $500 million to $15 billion.

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