Financial, compliances crucial in the journey to IPO

by ASILA JALIL / pic by TMR FILE

COMPANIES who are planning to go public need to be aware of their financial position and prioritise compliances to optimise the value of their IPO. 

Deloitte IPO leader Wong Kar Choon and Deloitte disruptive events advisory senior manager Brian Tan said IPO paves the way for a company to raise funds mainly for expansion across relevant sectors into untapped markets and increase profitability by having better control of their business ecosystem. 

Among the essential components leading to an IPO is a stable financial position that could support the company as it embarks into the journey. 

“What is required, specifically, is the latest three years of audited financial statements, with a time frame of six months to list from the end of the last financial year. 

“This means once the process is initiated, the clock starts ticking, and any delays could result in unnecessary expenditure,” they said in a statement yesterday. 

Businesses should also be equipped with a dynamic and robust enterprise resource planning (ERP) system that captures and consolidates all essential transactions. 

The common problem that companies go through while planning to be listed is incomplete data due to inefficient systems, thus requiring them to manually extract and reproduce transactions dating back years. 

“A good ERP system manages and integrates a company’s financials, supply chain, operations, commerce, reporting, manufacturing and human resource activities.” 

They noted that numbers and compliances will be heavily scrutinised by regulators when companies are going public, which can be an overwhelming and stressful process for most of them. 

Unprepared companies would likely need to go through an arduous process of restructuring to ensure compliance and optimise their IPO value. 

“Throughout the life of a company, it is quite common to have multiple entities under the same ownership. 

“A company might extract the most value from an IPO by consolidating its businesses under a single entity or group, or even “carve-out” a business segment to better position themselves to 

present the most attractive growth story and strong financial health in preparation for going public,” they said. 

There have been recent incidences of compliance breaches that resulted in scrutiny and losses of revenue streams. 

Even with the subsequent remediations, Wong and Tan said these issues have negatively affected operations of companies and tarnished reputations. 

Business owners and founders also need to know their growth trajectory for sustainability of the companies. 

They said founders can retain and reward talents who help make it possible and hire the right people as the business grows. 

The IPO method allows organisations to better know their company and its environment, as well as the way forward. 

“Luck favours the prepared. The ongoing pandemic has affected many businesses, with some even forced to wind up. 

“However, there are also many other businesses that have and are flourishing and growing from strength to strength. Going public is considered one of the most celebrated milestones a company can achieve. 

“The key success to a seamless transition is being able to plan and navigate through the IPO process,” they added.