INSIGHT

7 steps of the IPO readiness process

Will Tanem • April 14, 2025

Services: IPO Readiness

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The public market is waiting for your business—but are you ready for all the regulatory, financial, accounting, IT, governance and people-related challenges that come with it?  

From fine-tuning your business strategy to fortifying your financial controls, every aspect of your organization must be primed for the scrutiny of going public. BPM is here to help you get IPO-ready.  

“Current market conditions and volatility might have some IPO path companies decide to delay their debut and readiness activities. However, we strongly recommend that entities continue their journey to IPO readiness so that they are able to time the market when the conditions present themselves.” – Will Tanem – Partner, Technical Accounting & IPO Readiness 

In this piece, we’ll walk you through seven critical steps of the pre-IPO process. Whether you’re considering an IPO or actively planning one, understanding these steps helps create a clear path forward.  

Step 1: Perform an IPO readiness assessment   

Before engaging with investment bankers, attorneys and auditors, it is essential to lay the groundwork for your public debut and to assess where in the process your company currently stands. Entering the IPO process prematurely or without being fully prepared to address critical questions about the company’s readiness can be detrimental. 

We refer to this as the IPO readiness assessment phase. The goal is to thoroughly assess a company’s readiness in the following key areas: 

• Financial reporting 
• Audit readiness (including PCAOB audits)  
• SEC filing requirements (including the filer status) 
• Internal resources, along with external resources, to be identified in forming an IPO working group 
• Internal controls 
• Technology and cybersecurity 
• Corporate governance  

The assessment will identify the level of readiness in each category, ranking them from significant gap to public company ready. After identifying gaps, they are prioritized to focus on closing the most time-consuming and critical ones. By the end of this step, a company will have a detailed plan and timeline for a successful IPO. 

Throughout this phase, business leaders often ask several questions such as: 

• What will the IPO process look like, and what is a realistic IPO timeline? 
• Do we have the right team in place?   
• Are our investor expectations realistic? 
• How long will it take for my Company to prepare for a PCAOB audit? 
• How much will these IPO readiness activities cost? 

These questions are excellent starting points for building a thorough IPO plan. 

Having a trusted advisor guide you through the IPO assessment phase is invaluable. An IPO accounting advisor can help you perform the assessment and identify key gaps vital to the IPO process. 

Step 2: Strengthen your accounting and financial reporting infrastructure 

Readiness in accounting and financial reporting is frequently the most challenging and time-consuming aspect for businesses, often representing the largest obstacle to effectively timing the market. Strengthening accounting systems, enhancing financial reporting, and establishing robust accounting policies and procedures are key to help ensure stakeholders have confidence in a company’s ability to enter the public markets. 

Below is an overview of the critical areas to address during this phase of the IPO readiness process. 

Conduct technical accounting assessments 

A technical accounting assessment starts with taking an inventory of all complex transactions. Complex transactions include such things as:  

• Mergers and acquisitions 
• Debt and equity financing
• Research and development costs
• Stock-based compensation 
• Revenue recognition 

Each transaction is analyzed for accounting implications and comprehensive accounting policies are established for these areas to help ensure compliance with applicable accounting standards, accuracy, and consistency in financial reporting.  

The approach to each technical accounting assessment differs depending on the business, industry, and specific complexity and nature of the transactions. Furthermore, the look-back period for a company depends on whether the Company has previously audited financial statements. If so, the focus is generally on adjusting previous accounting conclusions to be applicable with public company standards as well as addressing new technical accounting requirements during current interim periods until effectiveness of the IPO transaction. 

To help prevent surprises or delays as the company approaches critical milestones in its journey, focus on: 

• Identifying complex transactions 
• Understanding limitations of the internal teams’ ability to tackle the various nuances of accounting standards 
• Addressing technical accounting gaps early in the process 

Accelerate month- and quarter-end closing 

For many businesses, closing the books in a timely manner can be a challenging task. Private companies may currently require around 30 days (and not surprisingly, some take even longer) to perform a GAAP close at the end of each month. In contrast, public companies face stricter deadlines due to SEC filing requirements. For example, large-accelerated filers must file Form 10-K within 60 days after the fiscal year-end, and Form 10-Q within 40 days after the quarter-end.  

This often requires a period close to being achieved in 15 days or less. Given the rigors of reporting in the public market, it is crucial for companies to speed up their closing process ahead of the IPO. By enhancing efficiency and reducing the time it takes to close the books, companies can: 

• Meet regulatory deadlines 
• Provide timely financial information to stakeholders 
• Improve overall decision-making 

To accelerate the closing process and minimize errors, companies need to implement efficient workflows with clearly defined roles and responsibilities, automate repetitive tasks, and leverage technology. Additional tools, such as a closing calendar with set timelines and technology-based closing checklists, can further streamline the process and help ensure that all tasks are completed on schedule. During this phase, the more practice and refinement of the process early on leads to less pressure and burnout on the accounting team prior to an IPO and once public with SEC deadlines looming. 

Quarterization and public company uplift of financial statements 

As a public company, you’ll have quarterly filing requirements. For private companies that tend to make GAAP-compliant adjustments solely at year-end in preparation for an audit, this could entail significant work in developing quarterly estimates and performing the same year-end exercise for multiple prior period ends.  

Quarterization is essential before going public because it helps to ensure your financial statements align with the SEC’s requirements for quarterly reporting and provides investors and stakeholders with timely, accurate financial data. Additionally, having GAAP-compliant quarters is essential for auditors to perform their review under PCAOB standards for periods to be included in registration statements. 

Audited financial statements in accordance with PCAOB  

Companies undergoing an IPO must include PCAOB-audited financial statements in their registration statements. These audits are significantly more extensive and rigorous compared to AICPA audits for private companies. Additionally, accounting standard “short-cuts” available to private companies are no longer applicable. 

Auditors performing PCAOB audits face additional oversight and scrutiny compared to those auditing private companies. Due to significant audit deficiency findings from regulators, there is increased pressure to conduct thorough audits to mitigate the risk of material misstatements and avoid penalties. This often leads to firms “over-auditing” all aspects of a company to be conservative and reduce the risk of findings. 

As a result, public company audits require a higher level of scrutiny, necessitating comprehensive support and resources at the entity level to meet the demanding PCAOB audit procedures. This includes: 
 

• Thorough accounting documentation 
• Robust internal control assessments (Refer to Step 3) 
• Close collaboration between internal teams and auditors to help ensure accuracy and transparency 

Valuation considerations 

As companies prepare for an initial public offering (IPO), understanding and addressing valuations and cheap stock considerations is crucial for a company to be considered market ready as these factors can significantly impact the IPO process. We typically recommend that in the period leading up to an IPO, a company starts a cadence of obtaining quarterly 409A valuations for purposes of valuing its equity grants especially in-line with market driving events such as the announcement of IPO plans or equity financing transactions. 

“Cheap stock” refers to equity issued or options granted at prices significantly below the company’s valuation which can be tethered to the anticipated IPO price. The SEC scrutinizes such issuances to help ensure that they reflect fair market value at time of grant and do not result in understated compensation expenses.  

Companies must carefully document the valuation methods and assumptions used to determine the fair value of their stock. This includes explaining any significant price changes and key milestones that influenced the valuation. Failure to address cheap stock issues can lead to delays in the IPO process, additional compensation expenses, material weaknesses in the control environment, and potential tax compliance issues under Section 409A of the Internal Revenue Code. 

In addition to 409A valuations for equity grants, companies must identify other financial instruments such as convertible notes derivatives that require valuations for quarterly reporting. 

Step 3: Establish proper internal controls  

As you prepare to go public, it’s crucial to establish robust internal controls and compliance measures to help ensure the integrity of your financial reporting and operations. Avoiding material weaknesses in your control environment builds trust with the investor base that the Company is ready for public market scrutiny. This involves ensuring compliance with key regulations like the Sarbanes-Oxley Act (SOX) and implementing frameworks such as COSO to strengthen risk management and governance practices. 

Implementing the COSO framework requires a commitment from the executive team to establish a culture of integrity and strong tone at the top. During this phase in IPO readiness, a company may begin by performing a risk assessment to identify gaps in its current control environment which then segways into the process of closing those gaps prior to a public offering through the implementation of control process and activities. 

Bolster your corporate governance approach 

As a company prepares for an IPO, designing and refining the board structure becomes a critical step in ensuring effective governance and compliance with regulatory standards. Public companies in the United States typically establish three key standing committees: Audit, Compensation, and Nominating/Governance.  

These committees are essential for addressing specific areas of oversight and ensuring that the board can focus on strategic decision-making. However, the exact requirements for these committees can vary depending on the listing exchange and other factors. 

Each committee operates under a formal charter that outlines its responsibilities and helps to ensure adherence to SEC and listing exchange requirements. This structured approach allows the full board to concentrate on monitoring the execution of the company’s strategy, while the committees delve into specialized topics.  

For instance, the Audit Committee can conduct in-depth reviews of financial performance and risk management, the Compensation Committee can oversee executive compensation plans, and the Nominating/Governance Committee can focus on board composition and governance practices. By refining the board structure in this way, companies can: 

• Enhance their governance framework 
• Build investor confidence 
• Better navigate the complexities of the public market 

While establishing this corporate governance framework may require a transition period after going public, understanding the structure and beginning to adapt early in the IPO process is ideal. This proactive approach helps to ensure that a company is prepared for any exchange listing they desire. 

Step 4: Drafting the registration statement  

Drafting a registration statement is a critical step in the IPO process. A registration statement is a formal document filed with the Securities and Exchange Commission (SEC) that contains detailed information about your company, including its business plans, financial condition, management team and the terms of the securities being offered. It is typically filed on Form S-1 for initial public offerings or Form S-4 for mergers and acquisitions or de-SPAC transactions. 

The prospectus, which is part of the registration statement, summarizes key information in a more concise and accessible format, highlighting the risks and benefits of investing in the company. 

The drafting process is typically performed in collaboration with management, the IPO accounting advisors, securities counsel and the auditors. The initial drafting process can be lengthy and complex due to multiple stakeholders and therefore we recommend starting the process early. 

Once you file the initial registration statement, the SEC typically takes about 30 days to review and provide comments if additional information or clarification is needed. After receiving the SEC’s comment letter, the company generally has 10 business days to respond, addressing the comments and filing amendments to the registration statement until the SEC is satisfied.  

Step 5: Shore up your technology and cybersecurity environments  

Today, investors and regulators not only expect, but often demand, robust technology and cybersecurity infrastructure that can protect sensitive data and help ensure business continuity, making it an integral part of your pre-IPO process. There are documented cases of companies that recently went public getting targeted by threat actors.  

During the pre-IPO stage, a significant percentage of resources are often dedicated to getting the product to market rapidly and overall company viability; this can introduce inherent blind-spots, or “unknown unknowns” that increase risk exposure. To close this gap and understand the present-state, start by conducting a comprehensive Cyber-IT risk assessment of your current IT environment, inclusive of all cloud hosted resources and on-premises systems.  

A thorough assessment will go beyond IT and examine how resilient the business will be to attacks, how data is managed, the overall maturity of the security program, and identify outdated technologies. Ultimately, the goal is identification of risks that could threaten your operations or data security and development of a clear roadmap to resolve issues. Focus areas include: 

• Business continuity & disaster recovery  
• Data classification and governance 
• Applicable compliance requirements 
• 3^rd party risk management 
• Overall security awareness 
• Evaluating your hardware, software, networks and data management  
• Identify legacy IT systems  

As part of the assessment, a gap analysis is performed to understand and prioritize areas for improvement that promote multi-layered security measures including:  

• Strict data access controls 
• Strong authentication such as MFA/2FA 
• Intrusion detection systems and alerting capabilities 
• Encryption of data in transit and at rest to protect confidentiality 
• A current incident response plan tested with tabletop exercises 

Be prepared to articulate your cybersecurity maturity to potential investors. Take the initiative and proactively harden your environment; this demonstrates a commitment to protecting your company’s assets and the security of their potential investment.   

Step 6: Implement an ERP system  

As companies prepare for an initial public offering (IPO), ensuring that their internal processes and systems are robust and scalable becomes paramount. One critical component of this preparation is the implementation of an Enterprise Resource Planning (ERP) system. An ERP system integrates various business functions into a unified platform, providing real-time visibility and control over key operations. This integration is essential for several reasons:  

• Maintaining accurate financial records 
• Maintaining compliance with regulatory standards 
• Reducing the risk of errors 

It automates complex accounting tasks, such as revenue recognition and financial consolidation, reducing the risk of errors and ensuring compliance with accounting standards. It streamlines business processes, enhancing operational efficiency and scalability. With real-time access to critical data, management can make informed decisions, improving overall transparency and investor confidence.  

Additionally, an ERP system simplifies compliance and reporting, reducing the administrative burden and ensuring timely and accurate regulatory submissions. By investing in a robust ERP system, companies can position themselves for a successful transition to the public markets. 

Step 7: Build a comprehensive HR foundation 

As you prepare to go public, establishing a robust HR foundation is essential for attracting and retaining top talent, ensuring employee engagement and navigating the complexities of compliance and employment regulations.  Don’t forget ensuring your framework (HR systems and practices) is aligned and able to support your future growth. 

Building a strong HR foundation involves several key components: 

• Recruiting the right talent: Attract leaders who can drive your company’s growth and strategic vision.  
• Compensation philosophy, structure review, benchmarking: Employment disclosures must include compensation analysis.  Review of stop/share plans, executive compensation topics such as CEO pay ratio, review of bonus programs, and ensuring the compensation philosophy is appropriate for the go forward are all within our wheelhouse. 
• Employee communication: Foster a culture of transparency by clearly communicating the reasons behind the IPO, the benefits it brings and how it impacts employees. This includes explaining the company’s vision, addressing concerns and ensuring employee buy-in. 
• New compensation plans: Develop executive compensation plans that align with public company standards and introduce equity programs for employees to incentivize performance and retention. 
• Shifting compliance and employment regulations: Maintain compliance with changing labor laws and regulations that apply to public companies. Update policies and procedures to meet these new requirements, reducing legal risks and maintaining a positive work environment. 
• Infrastructure built to support growth:  Validate that the systems you currently have in place are optimal for the growth and additional regulations ahead, from payroll to HR practices that are optimally embedded in your systems, to promoting efficiency at the highest level. 

By implementing these components, you create an HR framework that supports your company’s growth, enhances employee engagement and helps to ensure compliance with regulatory requirements.  

Navigate your IPO journey with BPM 

Our approach guides companies through IPO readiness, focusing on your unique needs and challenges. We work alongside your team to determine the current state, identify gaps and implement necessary changes. 

From initial readiness assessment to post-IPO support, BPM provides comprehensive guidance to transform your company into a robust, transparent and potential investment opportunity ready to withstand the rigors of public markets. 

Contact us to learn how we can help prepare your company for a successful public market transition.