How CFOs can help in navigating the SME IPO economic turmoil

For a small, medium, or micro enterprise, reaching the IPO stage is an aspiration that will open up new vistas for their future. However, completing a successful IPO is not a walk in the park even for established startups. It requires clear vision, foresight, strategy, and flawless execution. Most importantly, it needs an effective CFO at the helm to drive the entire operation from start to listing on the bourses.

While CFOs cannot manage the timing of the issue and performance in the financial markets, they can prepare the organisation in advance by making the necessary changes and getting them IPO-ready before the event.

Getting the business in order

The first task of the CFO would be to get the house in order, assess the current reality, and get the right financial structure in place. It is important to make sure that the financial software being used is robust and that there is a single source of truth. A lot of information will have to be shared with the lead managers and investors, and it is imperative that the data is correct, authentic, and verifiable. Having the right technology will help in working through accounting challenges like asset valuation and revenue recognition. 

Get the right people on the finance team

Before you drive the IPO bus to the bourses, it is important for the CFO to get the right people on it. Since the IPO is a long-drawn and time-consuming process, it is essential that the CFO assesses the internal and external teams at least a year before the IPO in terms of their strengths and weaknesses. The finance team should have a clear delegation of responsibilities with qualified professionals handling each aspect. This will give the CFO a free hand away from business as usual to focus on IPO-related issues.

The CFO should have a strong core team of direct reports who can lead the team in his/her absence. The rest of the team should be hired making sure that existing skillsets are supplemented. This will ensure that all aspects are covered in respect of deliverables.

SMEs may not find it viable to hire a full-fledged finance function, and here is where the role of virtual CFOs comes in. Several organisations provide virtual CFO services remotely to help SMEs meet the knowledge and skill gap. Instead of hiring full-time employees, it is possible to outsource some of the roles to these professional outfits who can deliver the job at a fraction of the cost. 

The CFO will also need to participate in the finding and hiring of the IPO team, which will include a lead banker, underwriter, auditor and legal advisers who are in sync with the company’s post-IPO aspirations and have prior experience in IPOs.

Get ready for detailed financial reporting

If the company is getting ready for an IPO, it has to make itself ready for scrutiny. A listed company will need to meet stringent accounting and reporting requirements that will need to be audited. The immediate challenge for a CFO in the 12 months preceding the IPO is to create a comprehensive plan to manage financial reporting in near real-time as a public company. CFOs will need to modernise their financial software to cope with the new reporting requirements. They will need to practice reporting within 10 days of the period close without the need for additional staff or technology infrastructure.

The CFO will need to oversee the implementation of ERP, CRM, reporting, budgeting, and forecasting tools and business Intelligence to ensure that real-time data is available to ensure informed decision-making and accurate reporting. This will allow the finance team the leeway to focus on additional requirements for the IPO.

Make sure tax compliances are done

All tax compliances should be completed before the IPO process begins. The CFO needs to ensure there are no liabilities due that may create a problem in the future. All aspects like Income tax returns, Income Tax paid, ESI/PF Payment calculation, payments and returns filed for GST/TDS. Since these are deadline based, they should be completed well before time to ensure a smooth IPO process.

Improve investor relations

It is important to know how to tell a good story that will present the company in a good light and resonate with the audience. The CFO plays a key role in articulating the company story including the differentiation from peers and product roadmap to the corporate vision and growth objectives.

When CFOs present financial details to prospective investors, they should not go overboard and make ambitious promises that can set up the company for failure. It is best to present a realistic picture with reasonable forecasts that are achievable. The CFO needs to present an equity story that is attractive enough for investors to put their money in but realistic enough to be achieved to gain and retain respect in the public domain. If the issue is overpriced, the market may punish it in the future if expectations are not met. 

Conclusion

For an SME, it is a great achievement to list the company on the stock exchange. It involves multiple challenges given the highly competitive business landscape we operate in. The CFO is the key person in charge when it comes to handling the hurdles that accompany an IPO. It is prudent to ensure that the finance function is strengthened before venturing into a public issue. 

In case of small startups, it is prudent to outsource the finance function to professional service providers who can handle all the requirements remotely. They are able to navigate the various challenges posed by the IPO and ensure its successful completion.

The CFO is the key person when it comes to negotiating tough curves in a corporate journey and hiring the right person can be very effective to reach these goals comfortably. In today’s dynamic technologically advanced business landscape, outsourcing these services makes life easy for small, medium and micro enterprises that are planning to go public.