As IPOs dwindle, now is the time to prepare to scale – TechCrunch
By Tony Tiscornia, CFO of Coupa.
After gritting their teeth out of the global COVID-19 pandemic, businesses are now facing new economic uncertainty. We’ve seen a boom in IPOs in 2021, a banner year for most accounts, but as we enter the second half of 2022, IPOs are down significantly from last year and the threat of another looming recession.
In the current economic climate, it is of course wise for managers to gain a thorough understanding of all aspects of their business and to assess the various risks. But it’s also important that companies learn from their recent resilience and agility, as well as examples from the past, to emerge stronger from this latest set of challenges. These too will pass and when they do, companies need to be well positioned and ready to capitalize.
It’s important for business leaders to make sure that delaying their IPO doesn’t mean delaying preparing for an IPO. Companies that decide to postpone their scheduled listing for whatever reason should take advantage of this time to get their financial processes in order.
Major successes have arisen from circumstances similar to those we face today. Lego is an example of this, having weathered the 2008/9 recession successfully, transforming its fortunes from near bankruptcy in 2003 to become one of the most successful brands in the world a decade later. Big companies like Airbnb, Asana, Slack, and Uber also launched to huge success during the same crisis.
Looking further back, Microsoft and Apple were both forged during the 1970s recession and launched soon after. This appears to have instilled a positive and proactive attitude in the face of economic uncertainty, with Tim Cook confirming that Apple “believes in investing in downturns”. Cook has also previously ruled out cost-cutting measures in response to economic difficulties, as part of the company’s long-term strategy.
The The World Bank discovered several similarities between the financial problems of the 70s and those of today but, above all, also finds reasons for optimism. The US dollar is much stronger now than it was then, and financial institutions find themselves in a position of relative strength. In addition, central banks now have clear price stability mandates and can boast of achieving their inflation targets for three decades.
As a company that emerged stronger from the Great Recession of 2008 and demonstrated resilience and agility in the face of the recent pandemic, Coupa understands firsthand that no two crises are the same. We also know what it takes to build at scale and have a successful IPO, having done it ourselves and helping many companies, such as Uber and Slack, do it too. Therefore, we started understand exactly the challenges and obstacles that businesses faceay, and share this information so that business leaders can take stock and prepare to restart their acceleration plans as soon as it is convenient for their organization.
We conducted a global survey to investigate the financial readiness of companies considering an IPO. The main finding revealed that nearly 80% of fast-growing companies have delayed or plan to delay their IPO, with the majority planning to postpone it by 6 to 18 months.
Despite this, the demand for growth is high, with half of the companies surveyed (51%) expecting to increase revenue by at least 30% over the next two years. This is a very encouraging statistic suggesting that businesses are confident of surviving the latest blow to the economy, with an eye on medium-term recovery and growth.
However, our research also revealed that a significant number of companies have yet to put in place the technology, processes, and people needed to successfully go public. The extra preparation time they now have could prove crucial to their growth ambitions.
One of the most important goals for any business anticipating increased operational and reporting requirements, as well as investor and regulatory demands, is to have back-end financial systems that provide a single source of truth for every major area. This instills confidence in financial operations and compliance before you are ready to register or seek additional funding, while easing the burden of operating as a public company.
Our research shows that nearly three in four high-growth companies (72%) agree that their finance processes are not robust and scalable enough to support their growth plans. Particular attention should be paid to three key areas in particular: making finance teams more efficient, unifying disparate systems, and improving critical processes and infrastructure for preparing for last-mile IPOs.
1. Make finance teams more efficient
Companies aspiring to execute an IPO need a solid grip on their finances, but only 48% of finance leaders can access real-time spend and financial data. Several factors contribute to this problem, including financial processes that are still managed manually.
Most respondents to the survey of companies considering an IPO struggle with this, as processes such as sourcing (60%), vendor management (56%), cash management (56 %), invoicing (47%) and payments (40%) are still ongoing. partially or completely manually. Not only can this lead to errors and take up more of the finance team’s time and effort, but it can also prevent each process or system from integrating and “talking” to each other.
2. Unify disparate systems
Another key to reaping the benefits of real-time financial data is ensuring that it is not siled across the organization in isolated departments or scattered across outdated legacy systems. Our research found that 75% of people need multiple systems just to manage their cash in the cash register, with 29% needing to connect to at least 4 different systems to do so. Single, unified platforms specializing in systems and financial data integration can have an immediate impact and should be a priority in any organization’s back office modernization.
3. Preparing for the last mile IPO
Finance leaders are always working to extend key last-mile finance capabilities to support their business ambitions. The top one, cited by 85% of companies, is to improve their risk management processes and controls to mitigate financial risk, while 67% want to improve financial controls to protect stakeholders and prevent misuse of funds. Without effective controls in these areas, businesses expose themselves to the risk of serious issues that could significantly and negatively affect them. Investors not only want to ensure that these measures are in place, but also that they are rigorous.
Systems and processes are clearly very important, but it’s essential not to overlook the people leading the charge as an IPO approaches. IPO involves a wealth of specialist knowledge of the company, the industry and the IPO process, requiring a dedicated team of experienced financial experts to guide and advise the business. Up to 70% of companies are still in the process of building this team and given the nature of this role in identifying actions and potential issues, it is a priority to get in place as soon as possible.
High growth or pre-IPO phases are major stress tests for any organization, and a market environment like the current one only adds complexity and uncertainty. But most companies have been here before, very recently, and some might even have one or two more recessions under their belts. Still others have emerged from difficult times stronger than ever.
Caution is obviously advised and required, but it should not completely halt an organization’s plans for acceleration and growth. Finance teams can be the anchor in these storms, providing real-time transparency to aid management decisions, as well as process development and technology implementation to support the path forward.
Ultimately, giving finance teams complete financial visibility and control helps a company run more efficiently while simultaneously being better prepared for an IPO. This means that for companies that are delaying their IPOs and those that are more focused on margins as macroeconomic pressures increase, now is the time to digitize back-office functions.