Many private companies think of an initial public offering (IPO) as a viable option for growing their business. But the process isn’t easy and carries significant risk and requires a meticulous plan and strategic thinking to ensure long-term success.
To prepare for an IPO the first step is to formulate and communicate your equity narrative. This will tell investors how you plan to create value, and how your business is differentiating itself in the marketplace. This is important for establishing an attractive valuation and attracting the attention of investors, underwriters, and analysts.
Next, you need to examine your leadership team and management. You want to make sure that your management team is able of managing an IPO, which is a risky undertaking. For example an IPO could result in additional financial reporting requirements and tax implications. This could require the addition of an accountant or tax expert to the executive team. You’ll also need decide if you would like to have dual-class stock, which gives the founders as well as the top managers different voting rights.
A record of financial accountability is crucial for an IPO. This includes having a clearly-defined SOX programme, which should be implemented and revised prior to the IPO. It is also necessary to review your existing system of records. This includes minutes, capitalizations files material agreements, as well as older option grants. This is essential to meet SEC requirements and bank underwriters. It is essential to determine whether there are any “material weaknesses” in the company’s controls to ensure that you have the controls in place prior to going public.
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