Preparing for an IPO in 2023: What to Know

By Adam Zaki for CFO.com

Inflation continues to bombard the economy alongside rising interest rates, an unpredictable labor market, and insolvency issues for banks, and the thought of going public in such an unpredictable market may be far-fetched for finance leaders who are looking to batten down the hatches and ride out whatever type of economical wave is ahead.

But for finance leaders looking to be bold and follow through with IPO plans regardless of the current state of the short-term market, the process is as intricate and overwhelming as ever before. 

Anees Pretorius, CEO and co-founder of the digital accounting platform Bean, believes that many CFOs are overwhelmed with accounting-related tasks on top of all their other duties and tribulations. 

“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,” Pretorius told CFO. “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.”

The IPO process can be complicated, and for newer or even first-time CFOs, the process can be daunting. Whether it’s through consultants or leveraging a built-out network for advice, finance leaders will not be portrayed as heroes within their company should they lead an IPO initiative alone. Due to the layers of intricacy within the process, the margin for error is too slim for any finance chief to use this process as an attempt to strut their stuff to their C-Suite colleagues and company.

While discussing the reliance on the big four accounting firms by many CFOs to “shepherd” them through most of their company’s pre-IPO process, Pretorius explained how an assumption that these firms will do it on their own could be detrimental. According to the tech executive, it’s about asking for help, and then working in conjunction with that help to make sure each step of the process is properly completed.

“CFOs today cannot simply assume that [the Big Four firms] will have the capacity to do what is needed when it is needed,” said Pretorius. “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,” he continued. “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.”

When turning to help, especially through the Big Four firms or a consultancy agency, Pretorius instructs CFOs to be aware of the labor challenges these companies are facing. Just like many many of the companies these CFOs represent, these firms are in the midst of a shortage of quality labor, particularly accountants. The costs to tap into one of these organizations for help may be higher, the process may be slower, and it may be done by newer and/or less experienced people. 

“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,” said Pretorius. “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.”

Although the process of bringing in these firms to do this type of work is nothing new, the results may be delayed or different due to the extenuating circumstances of workforce issues and the greater economy. Expectations of results in the current climate may be needed to be adjusted, says Pretorius. Although the results may be different, the outcome of a successful IPO launch is still the same goal, and it’s pivotal for CFOs not to get frustrated.

“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 Four firms]. “The price tags for the services of [these] 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.”

With all the services and technology companies are offering as remedies for many of the issues facing CFOs, the ability of a finance executive to know what types of technology work best for them at the right moment is continuing to become a point of measurement for their abilities. The accounting shortage, rising labor costs, and economically-induced budget cuts have created a ripe opportunity for tech-savvy CFOs to step in, leverage the tech market, and pull out what they can to develop steps for or ultimately carry out an IPO launch.

Through comparisons of disruptive technology like YouTube, Slack, and Zoom, Pretorius believes that SaaS products that are available now have the same potential for disruption in the accounting space as these programs had in their respective industries. According to the co-founder, technology is incredibly volatile for the disruption IPO launch process. 

“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,” Pretorius said. “A SaaS-enabled market network is bringing this flexibility to CFOs — and to the accounting industry — for the first time.”

“Those who use [this technology] 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.”