Five strategies for preparing a tech firm for an IPO

Mass High Tech: The Journal of New England Technology - November 10, 2006

by Ann M. Vickers, CPA

An initial public offering is a life-changing event. Many executives are overwhelmed by the complexity of rules and regulations in accounting, taxes, compliance and investor relations, along with the sheer volume of work. Operating under a microscope, executives are often distracted from their primary management responsibilities.

Fortunately, others have walked this path before and can share their experience. These recommendations are drawn from our firm's work with high tech and life sciences companies preparing for an IPO.

Start early

Most emerging high-technology and biotech companies are focused on research and development, not building their financial foundation. When the time comes to go public, they are often unprepared.

So if an IPO is in your future, start early. Consider having your financial statements audited and presented for external reporting. Having one's financial house in order can result in a higher asking price.

Don't overlook SOX

We are all aware that Sarbanes-Oxley (SOX) requires management to establish and maintain an adequate internal control structure and procedures for financial reporting. Addressing this early pre-empts a negative and potentially embarrassing report by the company's independent auditors, a report required by Section 404.

Do not, however, overlook Section 302. This requires that CEOs and CFOs personally certify that they are responsible for the financial statements and internal controls, that they have evaluated those controls and have notified their audit committee and auditors of any deficiencies. Because this certification is made personally, it can be quite daunting. And unlike 404, which requires an audit and assessment at the end of the fiscal year, 302 takes effect very shortly after going public.

Ensure good project management

An IPO is a team effort involving the company, its board, investment bankers, auditors and attorneys. It requires the signal calling of a good quarterback. The CFO often takes on this project management role, only to discover there are other demands on her time -- other fund-raising, strategic deals and road shows. That's when the CFO looks to outside assistance. The key role of project management itself can be outsourced. And skilled staff can be put in place as needed, without the long-term liabilities of permanent hires.

Know what your auditor can do

As a result of SOX, auditors must now follow stricter independence rules. No longer can you rely on your auditors to do this work. The company is now 100 percent responsible. It can either hire permanent accounting talent or tap outside consultants. The choice depends on internal resources and the time needed to do the job.

For any IPO, there is a limited window when market conditions are ripe. The process of recruiting, hiring and training an internal team can take too long. For this reason, many auditing firms advise their clients to retain a third firm to provide accounting services. The party of two -- client and auditor -- thus becomes a party of three -- client, auditor and outsourced financial services firm.

Know what to seek in partners

Seek experienced accounting professionals who know the technology industry. Former CFOs and controllers who have taken companies public before will know how to prepare an S-1 or an S-3. No one should acquire these skills at your expense.

With so much at stake, be sure to enlist experienced professionals who can advise and assist you as you build your IPO team, and who have traveled the IPO route before. This is no time to be penny wise and pound foolish.

Ann M. Vickers is a CPA and founder/CEO of Newton-based AccountAbility Outsourcing, an outsourced financial management firm for technology companies. She can be reached at accountab.com.