IPO readiness: what it really takes

0:00Welcome to the Leaders Insights Podcast.

0:07Today's episode, IPO Readiness, what it really takes.

0:11Most CFOs think they're 18 months from an IPO.

0:14How many actually are?

0:16Almost none.

0:17I've sat in rooms where the CEO says, we'll go public next year.

0:21And I'm looking at a finance team of nine people who closed the books in 25 days.

0:27Public companies close in five.

0:29You're not 18 months away, you're a rebuild away.

0:32That sounds like you're moving the goalposts.

0:34What does ready actually mean mechanically?

0:37It means you can produce audited numbers that survive strangers picking at them on a

0:41schedule you don't control.

0:44The durable principle here is that public markets don't care about your story.

0:48They care about whether your controls hold under pressure.

0:52An IPO, an initial public offering, selling shares to the public for the first time,

0:57is just the moment they start testing that.

1:00Give me the things CFOs consistently underestimate.

1:03The internal controls work.

1:05Sarbanes-Oxley, the US law that makes management personally certified that your

1:09financial controls actually work, is the graveyard.

1:13Everyone budgets for the bankers and the lawyers.

1:16Nobody budgets 18 months and a couple of million dollars to document how a single

1:21invoice moves through the company without a human quietly overriding it.

1:25A couple of million just to prove your controls exist?

1:28Easily.

1:29And here's the part that stings.

1:31The day you announce your revenue recognition, the rules for

1:35when you're allowed to book a sale as revenue,

1:37gets re-litigated by auditors who assume you did it wrong.

1:41WeWork learned that publicly in 2019.

1:44Their community-adjusted EBITDA got laughed out of the market.

1:49EBITDA is earnings before interest, taxes, depreciation, and

1:53amortization, roughly profit before the boring stuff.

1:57They'd invented a version that stripped out real costs.

2:00But that was a governance clown show.

2:02A serious company doesn't do that.

2:04Serious companies do subtler versions constantly.

2:08They have three sales teams booking deals three different ways.

2:12They have a founder who signs off on discounts by text message.

2:15None of that survives a public audit.

2:18The step back is this.

2:20IPO readiness isn't a finance project.

2:23It's an operating discipline project.

2:25The best operators figured out years ago

2:28that you build public company plumbing

2:30while you're still private and nobody's watching.

2:32How do you know if you can actually withstand the scrutiny?

2:35Give me a test.

2:36Run a mock earnings call.

2:38Get your team to forecast next quarter,

2:41publicly commit to a number, then miss it and explain why.

2:44If your forecasting is off by more than three or 4%,

2:47you're not ready.

2:49Public markets will forgive a lot,

2:51but they will destroy you for guiding to a number

2:53and whiffing it.

2:54That's the reflexive punishment.

2:56What's a real number on how often companies get that wrong?

3:00Look at the 2021 cohort.

3:02The SPAC wave, special purpose acquisition companies,

3:05essentially shell companies

3:06that take you public through a back door.

3:09A huge share of them

3:10missed their own first year projections badly.

3:13And a chunk traded below where they started within a year.

3:17That's what happens when you go public

3:19before the forecasting muscle exists.

3:21So is the lesson just wait longer?

3:23No, the lesson is start the discipline earlier

3:27and separate it from the timeline.

3:29I tell CFOs to run the company

3:31as if quarterly reporting already exists

3:34two years before any offering.

3:36Close fast, forecast honestly,

3:39document your controls,

3:41kill the founder's text message approvals.

3:43Then the IPO is a financing event,

3:46not a personality transplant.

3:47Name a company that got this right.

3:50Datadog, the monitoring software firm,

3:52went public in 2019 quietly and boringly.

3:56Predictable numbers, clean guidance, no drama.

4:00Boring is the compliment.

4:01They'd built the machinery early

4:03so the market just had to price it.

4:05Compare that to the ones who treat the IPO

4:08as the moment to suddenly become adults.

4:10One thing a CFO should do Monday morning?

4:13Time your clothes.

4:14If it takes more than five business days

4:16to produce numbers you'd stake your reputation on,

4:19that's your entire problem in one metric.

4:22Everything else, the bankers, the roadshow, the story,

4:25is downstream of whether you can count fast

4:27and count right.

4:29Count fast, count right.

4:30That's the whole game.

4:31That's it.

4:32The CFO decision tools are live at MBA-training.com.

4:36Thank you.