Why the Right CFO is Essential for IPO Success
Why the Right CFO is Essential for IPO Success
Preparing a company to go for an initial public offering (IPO) can feel like an uphill battle for even the most experienced CEO. Companies turn to their CFO to direct a successful IPO, from the earliest planning stages to bolstering investor confidence in the long term.
The CEO will require a strong-willed CFO to steady the ship and put the systems in place to deliver IPO success. Companies considering a potential IPO should first recruit a CFO to ensure that the company is ready for such a move.
Taking a company public is not a transactional task with rather a variety of tasks that must be achieved in unison. IPO success relies on transforming a business by enhancing its current processes and infrastructure to support the extra burden that comes with a company being public. Operational requirements and additional financial reporting call for new infrastructure and systems to ensure a successful IPO and transition.
Companies typically are driven to go public to access liquid capital through the stock market. An IPO can also boost the public image and perception of a company, offer an exit for the current management team or investors, and strengthen corporate governance.
IPO success is never a given. CFOs face challenges on every front, from greater regulatory requirements to auditing standards and growing calls for greater governance. A CEO and CFO must act in unison to ensure CFO success.
At FD Capital, we work with CEOs to recruit and headhunt CFOs who can prepare their company for a successful IPO and lead it through the transition period. Our team takes a tailored approach to recruitment, identifying the needs of our clients and working to find the most suitable candidate to take your company public.
The CFO’s IPO To-Do List
It’s a CFO’s responsibility to prepare a company for IPO, overseeing most of the process of preparing the company through accurate forecasting, developing a strategic roadmap, and developing an investment thesis for potential investors.
Preparing a company for IPO readiness requires time and effort, not only from the CFO. Their workload will increase substantially with more time-consuming tasks that require a strong finance team that they can trust to work alongside them.
It’s the CFO’s responsibility to ready the company for IPO, both operationally and through auditing. On a practical basis, the company’s financial reporting will increase from happening on an annual basis to a quarterly basis.
Top of the CFO’s to-do list will be to determine whether the company has the necessary infrastructure and human capital in place to ensure IPO readiness. The aftermath of the ‘great resignation’, rise in remote working, and a more competitive recruitment market means that human capital can determine whether a company has any chance of a successful IPO.
A CFO will take the lead in preparing the company for its IPO, including starting the process, putting the right operational and finance team in place, and establishing the infrastructure to support the company once it’s public.
What to Consider When Taking Your Company to IPO
Not every IPO will be a success. A CEO will want a CFO by their side who can take the lead in bringing the company to IPO and establishing it as a public company.
We work with our clients to identify the skills gap that exists within their company when recruiting a CFO to oversee a successful IPO. Having an experienced CFO on board is the first step to streamlining the IPO process and increasing your company’s likelihood of attracting investors and having a positive transition to becoming a public company.
The benefit of starting early
An IPO requires a company to take a hard look at its current operations and reputation, both internally and externally. They’ll need to establish new infrastructures, systems, and reporting mechanisms. Audits are crucial for gaining an accurate picture of the company’s current position.
The finance team will need the skills and experience to take the company through its IPO period. A CFO will likely have to expand their finance department to ensure it has the capabilities in place to deliver during the pre-IPO period and throughout the process of going public.
A successful IPO cannot happen in a short time frame. CFOs who have delivered a successful IPO have said that it can take several years to properly prepare a company and its systems for going public. Most CFOs will take two years to build their team, establish systems, develop transparency, and ensure accurate forecasting and reporting.
Defining the skill set of your CFO
CEOs and private equity investors value a CFO with previous experience of successful IPOs. Financial executives who have experience with a previous IPO under their belt know how to communicate with stakeholders and external audiences. Their wider network includes analysts and investors who are well-positioned to assist the company during its IPO.
Experienced CFOs can take a holistic approach to seeing their company through an IPO and beyond. They’ll develop a schedule that incorporates forecasting and achievable deadlines to keep the company on track for making a successful IPO.
CFOs who have previously led on IPOs will be prepared to ask difficult questions and offer a high-level view of the company’s financial and operational circumstances. Having a CFO on board will give potential investors and current stakeholders more confidence.
However, not every CFO will come to the table with prior experience in managing a successful IPO. We work with our clients to identify the individual needs of their company, choosing the skills that will complement the CEO and unleash the company’s potential as it goes public.
Adopting a broader view of the IPO period
Don’t set aside CFOs without IPO experience. There is a broad talent pool of CFOs who have the right experience and team around them to manage a successful IPO.
As the CFO builds their team to prepare for an IPO, they’ll likely choose individuals who have experience working on previous IPOs. If the CEO or private equity investors have previous IPO experience, it’s less essential for the CFO to have it. Companies that lack employees with IPO experience, at any level, will inevitably come to rely heavily on external advisors.
Take a broader view of going for an IPO and look beyond the experience of your CFO to your wider operational and financial teams.
The Role of a CFO in Ensuring IPO Success
The CFO will be involved in every aspect of the IPO, from determining if the company is operationally prepared for the transition and building the right finance team around them. Your company needs a CFO who is staying ahead of regulatory change and can develop a strong framework for a successful transition.
Finding the right CFO involves identifying a candidate who can form a winning partnership with the CEO and fill their skills gap. Understanding the role of a CFO in ensuring IPO success can help you identify the right candidate.
Building the finance team
An IPO never knows smoothly, there is always a hiccup or two along the road. It’s why it’s vital to choose the right CFO who will build a strong finance team around them. Your current team will experience a sharp increase in its workload as the IPO process advances, requiring new appointments to manage the pressure and workload.
It’s not unusual for a company to double the size of its finance team as it embarks on the IPO process. Announcing that your company is preparing for an IPO can enable the CFO to attract the right talent and experience to ensure success.
Accounting, regulatory management, internal auditing, and reporting are all aspects that will require additional support.
New regulatory requirements
When a company goes public, it faces a new array of regulatory requirements and oversight that it must abide by. The right CFO will be prepared for these and put a strong reporting and governance infrastructure in place during the pre-IPO stage.
Most CFOs and companies will work with financial institutions to identify risks and understand what reports and data needs to be gathered and produced. The average company will find itself needing to establish a department to oversee governance, risk management, and internal auditing.
Preparing the company for IPO includes investing in investor relations, external reporting, and technical accounting.
A resilient control framework
Before a company goes to IPO it needs a resilient framework that ensures internal control and accurate financial reporting. This framework will have to ensure that the company meets its regulatory requirements once it goes public and that it is transparent with investors on its financial position.
A newly appointed CFO will start in their role by conducting an internal audit to identify weaknesses and ensure a solid foundation. Auditing should be seen as an ongoing process rather than a once-a-year event. The CFO may engage with external auditors to review operations prior to the IPO.
Working with the CEO
The right CFO will work in unison with the CEO. It’s why most CEOs will choose to take a hands-on approach in recruiting a CFO, identifying what they need in their second-in-command and expect from a trusted advisor. The forecasting and financial analysis of a CFO will ground the CEO’s decision making throughout the IPO process.
The CFO acts as an extension of the CFO and is responsible for translating the company’s vision to investors leading into the IPO. They’re responsible for aligning the company’s finances with its over-arching mission and long-term goals.
A CEO-CFO should present a united front to investors, balancing each other out and giving confidence to the process. IPOs are more likely to be successful when they have a stable and high-functioning management team in place, starting with the CEO and CFO.
Investing in Technology
CFOs who are digital natives have the tools to deliver a successful IPO. Leveraging AI and automation can streamline reporting and ensure that the company meets its disclosure requirements once it becomes a public company. The average public company will utilise manual processing and technology to enhance efficiency and reduce regulatory issues.
A CFO’s IPO-ready infrastructure will include the latest technology to provide data-driven insights. Such technology would include investing in cloud-based enterprise resource planning, equity management systems, and customer relationship management. Investing in these systems and integrating them can make forecasting and results more accurate.
Automation is a vital tool for CFOs, allowing them to reduce manual labour and make their teams more efficient, particularly through data management. Documentation software can boost productivity and streamline operations.
A Different Role for IPO CFOs
A CFO will take a different role once their company reaches the IPO stage. They’ll begin to spend more of their time with external investors and in the boardroom, rather than working hands-on within the company. A CFO will spend more time on the road speaking to investors when their company has gone public.
This new role involves spending more time focusing on regulatory requirements and translating the company’s strategy to its investors.
Once a company goes public, one of the different roles that a CFO will adopt is ensuring that external reporting is as transparent and accurate as possible. It’s one of the biggest differences between being the CFO of a public and private company. A successful IPO means the CFO must ensure reporting is conducted accurately to avoid costly fines or regulatory punishments.
Recruiting a CFO for IPO Success
The best way to prepare your company for a successful IPO is to recruit the right CFO. While CEOs and their board members will put a premium on candidates with prior IPO experience, you’ll want a well-rounded candidate who can tick most of the boxes. Your CFO will see the company through its IPO and into its transition as a public company.
FD Capital is uniquely positioned to support your company through an IPO by recruiting the right CFO. Our team includes financial professionals and entrepreneurs with experience working with both private and public companies. We take a tailored approach to recruitment, identifying the individual needs of each client to identify the most suitable candidate.
Start your CFO recruitment or headhunting by contacting our team today at email@example.com.