Warming IPO Market Should Not Overwhelm CFOs
Here’s how CFOs need to prepare for a warming IPO market.
CFOs will find themselves buried in work if the IPO market heats up this year, and they may find that accounting firms have limited bandwidth. It’s just a matter of time before they will need high-quality, flexible accounting services. This is something a combination of technology and human expertise is making more possible today than ever – a movement that is gathering pace in the industry, shares Anees Pretorius, CEO and co-founder of Bean.
If you ask the chief financial officer of any company that has made the journey from privately held to publicly traded, they will tell you the same thing: It’s never too early to start preparing for an IPO.
As scrutiny of the company by outside parties heats up, financial reporting, forecasting and compliance become Herculean tasks that can quickly overwhelm in-house accounting capabilities.
This challenge affected fewer CFOs last year when the bear market ground the IPO market to a virtual standstill. But there are signs that the second half of this year might bring a substantial uptick in public market debuts.
This would be a welcome development for venture-backed startups and for the country’s economy. But for the CFOs and finance leaders of tech companies (or any company for that matter) looking to go public, a reopening of the IPO window this year would come at an especially challenging time. CFOs’ accounting bandwidth is already stretched, as are the resources of the accounting firms where they often turn to for help.
It’s well-known in the accounting industry that turbulent times mean more work. And layoffs, restructurings, down-rounds, belt-tightening and other bear-market realities made last year about as turbulent as they come for pre-IPO companies..
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Flexibility Needed
Bringing in outside accounting help has long been the go-to move for CFOs preparing to take a company public, with the overwhelming majority turning to the Big 4. But the price tags for the services of Big 4 accounting firms – and the CPA shortage these firms are contending with – mean that accessing this help may also be more challenging than usual this year.
If the IPO market does begin to heat up this year, CFOs will need to serve as strategic partners to CEOs and quickly access the accounting help they need when they need it. Because of financial constraints and other considerations, they will require more flexibility from the accounting industry than they have at any time in the recent past. And it’s an open question whether or not the traditional firms will be able to provide it.
Fortunately, new technologies and the entrepreneurial mindset of many young accountants are making this flexibility possible for the first time. As more younger workers seek ways to build their own brands, work from anywhere and pursue work-life balance, more of them are beginning to bring these sensibilities into the accounting industry. And new online talent platforms are giving them a venue that did not exist in the past.
This is good news for younger workers skilled at analysis and critical thinking who want to step off the partner track at a large accounting firm and build equity in themselves instead. And it’s even better news for CFOs with an IPO (or other special projects) on the horizon.
Phases of the Journey
When startups announce plans to go public, annual and semi-annual reports quickly turn into quarterly reports. And these are scrutinized down to the last detail.
CFOs generally turn to Big 4 accounting firms to shepherd them through most of the pre-IPO process, which includes getting sign-off on an overall roadmap, putting a process in place for ensuring financial information is materially stated, and then eventually filing an S-1 document with the SEC.
But CFOs today cannot simply assume that these firms will have the capacity to do what is needed when it is needed. And the cash constraints of many startups mean they’d likely want to avoid paying the full freight that has become the accepted industry norm.
Many CFOs who peel back the onion on the pre-IPO accounting process will actually find that they need a Big four firm for some – but not all – of the necessary work. Consultants who come from outside these firms often have the expertise to routinely pull financial documents and ensure they are materially stated, which is essentially the second leg of the long, arduous process.
The expertise for this middle phase exists outside of the Big 4, but what has been lacking is the flexibility that CFOs need to access it on demand.
New Alternatives
Twitter, Slack and Zoom have offered new flexibility to the way we communicate, while YouTube and TikTok have offered new ways to create entertainment or to consume it. Airbnb brought so much flexibility to the real estate rental market that now every property owner can become a short-term landlord.
These companies and many others have gone from being mere Silicon Valley curiosities to household names because they offered a new alternative in an industry that had not been disrupted, one that gave the user flexibility that previously did not exist. Until recently, the accounting industry had not been similarly disrupted.
A SaaS-enabled market network is bringing this flexibility to CFOs – and to the accounting industry–for the first time. Those who use the network will find that the talent, tools and expertise that traditional firms have been incentivized to keep to themselves have now moved online, where younger finance professionals can use them to launch their own entrepreneurial careers in accounting.
This is happening not a moment too soon because hundreds of startups may see their accounting work pile up as the IPO window begins to open again.
Our country needs the innovations that tech startups are creating, but in many cases, only a smooth go-to-market process will ensure that their products and services reach the consumers who need them.
This process cannot be compromised by a shortage of accountants or by prohibitive price tags for specialized accounting services.
Fortunately, there is no reason that this needs to happen. The right technology and the right people have come together to bring new flexibility to the accounting industry. And it couldn’t be happening at a better time.
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