Over the last six months, while I've been supporting clients through their IPO journeys, my husband and I have also been on our own journey to transform our traditional suburban home into a modern, functional living space. In planning a home reno, certain matters that must be addressed so that the building meets minimum standards for safety and structural sufficiency. Inspectors will check these elements to ensure compliance, reviewing that any framing, plumbing, HVAC and electrical work is up to code.
But the real opportunity of a home reno is in thinking about how these foundational elements are helping us to achieve our long-term vision for our home, and the seemingly minor design decisions we make along the way are all in the context of helping us to progress toward it. If we need to re-do our electrical, can we arrange the switches and outlets in a way that improves flow? If we need to replace our appliances, can the new ones have better functionality or be more energy efficient? These elements may seem insignificant at first, but I believe they have the potential to take our home from one that is code-compliant to one that will be equipped to suit our needs and lifestyle both as soon as the project is completed and also for years to come.
Seize the opportunity
The same is true with IPOs. Since processes and policies are being evaluated and changed as part of your journey, there's a significant opportunity for you, as a finance leader, to incorporate a continuous improvement mindset into your IPO readiness efforts and drive additional value. Setting a vision for your finance function and adopting a continuous improvement mindset from the start will open the door for numerous opportunities to improve your governance and financial reporting practices, while also making necessary changes to meet the IPO's immediate needs.
Of course, this is easier said than done. The lead-up to an IPO tends to be short because its timing is usually driven more by market factors than by any internal appetite or readiness for change. You'll need to determine how to allocate time and resources both to maximize the potential benefits of enhancing your current processes and to ensure the policies, processes and controls needed to meet regulatory requirements exist and are running in time. In other words, you'll likely be forced to balance the need to "get compliant" with the desire to "get good."
Most companies prioritize the 'get compliant' side of the equation and accept inefficiencies in their current processes if these processes are "good enough" for the upcoming IPO. Few companies are willing to undergo a larger transformation because doing so might mean missing the peak market opportunity for the IPO, which would be too costly.
But adopting a 'get compliant' only perspective can cause you to miss significant opportunities to implement quick wins. Worse still, a 'get compliant only' perspective without any consideration for leading practices could mean that new inefficiencies are designed into the finance team's operating model and remain there until they are revisited at an undetermined future date.
So, how can you strike the right balance?
- Build the right team. To make the most of your IPO readiness efforts, train your team or bring in external advisors with experience both in compliance requirements and in leading financial reporting practices. The team leading the IPO readiness efforts will be developing a deep knowledge of your organization throughout the process. As they develop this knowledge, they should be on the look out for opportunities to streamline processes or to improve them by adopting leading practices.
- Take the quick wins. As you identify areas for improvement, look in particular for those high-impact opportunities that will take low effort to implement (e.g., right-sizing materiality thresholds or simplifying processes) and factor these quick wins into your process redesign leading up to the IPO. Opportunities for longer-term, strategic changes that you can't implement right away (e.g., implementing new systems or improving existing tools) should be identified and tracked, so they can be reviewed and prioritized when the IPO is complete. When you later decide to implement these more strategic changes, engaging the same team that supported you through the IPO in design and implementation could significantly shorten your ramp-up period.
It's all about the mindset
Preparing for an IPO is a high-stakes, high-pressure time and it can be hard to think long-term. But an IPO is by nature a long-term event that brings permanent commitments and requirements to your company. Adopting a continuous improvement mindset into your IPO process can help you 'get compliant' and 'get good'—preparing your company for both the IPO and the future.