The initial public offering (IPO) is a transformational event in a company’s life cycle. Getting there does not happen overnight; the road leading up to an IPO is a long, arduous process requiring significant planning, especially when it comes to financial reporting, making sure you have the right systems in place, building your internal and external team, and designing and implementing internal controls.
Joe Notaro, an accounting advisory services partner at Forvis Mazars, recently joined John Bagdonas, vice president of business development at J.P. Morgan Workplace Solutions, for a joint webinar covering the impacts on financial reporting, equity compensation, and internal controls for private companies undergoing the IPO preparation process. The archive recording can be viewed here.
Their discussion revealed two key takeaways: when preparing for an IPO, it is never too soon to begin looking into the full process, and organizations can never have too much help when starting their IPO path.
Below, delve into the process timeline and helpful steps your organization can take to help streamline the road to an IPO.
IPO Market Overview
In 2021, there were over 1,000 IPOs, a record in new listings, raising $286 billion.1 In 2022, this was followed by a sharp decline with under 200 IPOs.2 Since then, many private companies have been waiting and watching the market for the right moment to properly proceed with their IPO process. This was due to a variety of reasons: interest rates were too high, fear of a potential recession, inflation risks, geopolitical tensions leading to investor uncertainty, and more.
Despite these factors, 2024 saw a notable increase in activity. In 2024, the number of IPOs was in line with the combined total number of IPOs in 2022 and 2023. In addition to this, some encouraging trends have emerged, including an uptick in sponsor-backed IPOs, an impressive return of over 40% of sponsor-backed IPOs after going public, and an increase in venture capital-backed IPOs that are nearly double the raise in 2024 compared to 2023 and nearly four times higher than the increase in 2022. These statistics have been driven by healthcare and technology, with these sectors making up the majority of deals.
With these factors in mind, there is optimism that the IPO market may bounce back this year and continue to be strong in 2026.
IPO Preparation Timeline
Waiting for opportune market conditions before beginning the IPO preparation process could put your business at risk of falling behind those who started sooner. Companies considering an IPO should solidify their process timeline and begin planning now, since it typically takes 18 to 24 months to complete the IPO preparation process.
At the onset, a company should clearly define their reason to go public. Identifying your why—from raising additional capital to expanding into new markets—helps to build a narrative around your company’s valuation.
An organization also needs to ascertain what route their business will take entering the capital markets: each has different requirements (such as filing necessary documents with respective regulatory bodies, such as the SEC in the U.S.) that companies need to consider for their process.
When to Utilize Third-Party Support
IPO Readiness Assessment
With timing and a defined purpose in mind, companies may then consider an IPO readiness gap assessment. This examination typically involves a third-party firm and drills down into company processes, systems, and people through C-suite interviews, review of existing processes and procedures, and prior public experience.
The assessment is meant to provide an overview of your company’s accounting and financial reporting, human capital operations, software and vendor selection, legal infrastructure, and more. The volume of action items will vary based on your organization’s current state.
This approach is crucial, as it provides your organization with recommendations and next steps designed to help educate your C-suite and board about any gaps in your company. In addition, the findings can help garner buy-in from relevant stakeholders and board members.
A significant portion of IPO readiness assessments includes reviewing your organization’s systems and software. Utilizing software solutions can help streamline reporting and other time-consuming tasks. It can also decrease time spent internally handling equity plan administration and other financial reporting obligations.
The assessment will analyze your current internal team and make recommendations across the organization from finance and accounting to human resources and governance functions. For example, it is likely that your organization will need more employees in accounting and finance allotting time for this work, due to the nature of tighter deadlines as a public company.
This is also a great opportunity to start building your team of external professionals since the assessment will cover a range of focus areas (from SEC counsel and investor relations to income taxes and valuation) that can inform your organization of any operational gaps.
Experienced third-party firms will be familiar with the varied IPO requirements and can help you navigate the process and complexities involved in IPOs.
Internal Controls
As a public company, management will need to assess and affirm in your public documents that the company’s internal controls over financial reporting are effective. Under a traditional IPO, the company will be exempt from this in its first Form 10-K filing, but not the second. All filers are required to comply with this in their second year.
Depending on the filing status, management may also need its external auditor to opine on the company’s internal controls over financial reporting as early as the second year. Some companies will be exempt from this for several years depending on the filing status.
Regardless of the situation, focusing early on documentation requirements for your specific IPO situation can help make for a smoother external audit process.
Acing the PCAOB Audit
One of the biggest challenges that companies face during this process is an external audit. For example, your private company may not have had an external audit requirement prior to IPO preparation. Or, your company could have conducted their audit requirement under AICPA standards instead of PCAOB standards.
The initial PCAOB audit can be a substantial lift and a potential roadblock to going public for those who do not properly plan ahead. As a best practice, completing a PCAOB audit the year prior to going public is recommended for companies.
The SEC requires companies to include PCAOB-audited financial statements in their IPO registration, and selecting the right external audit for your company is based on your business and timeline. With a PCAOB audit, an auditor may be limited in the assistance they can provide given the PCAOB independence standards being more stringent. In addition, there are certain enhanced disclosure requirements and greater testing samples that would need to be performed to support the audit opinion.
Selecting your external auditor is a major step but preparing for the PCAOB audit is equally important. Engaging with professionals who know the process and are familiar with the industry and processes required is critical. Often, this can be executed by the same team that performed the IPO readiness gap assessment.
Companies may engage a valuation professional to assist with this work, especially organizations who issue stock-based compensation or preferred stock, have lease contracts, or enter into complex transactions.
Equity Compensation Plans
During the pre-IPO period, your company can revisit how equity compensation awards are handled. Look through all elements of the overall offering (including vesting, exercise, and forfeitures) and consider how awards will look like once you become a publicly traded company.
Moreover, it is essential for companies to devote significant time and resources to their compensation plan arrangements in the pre-IPO period, as this type of compensation tends to be handled differently in the post-IPO environment.
Again, a third-party accounting, law firm, or compensation consultant can help your organization reach its goals. These types of support are great resources for creating compensation plan arrangements, along with gathering tax pros and cons for your company and employees.
Building Your Working Group
For a traditional IPO, the most typical form is the S-1. This is where the working group will go through the required sections of the document and assign roles and responsibilities. A legal team will likely own most of the document, including sections on risk factors and management discussion and analysis (MD&A). The accounting team and technical accounting professionals typically oversee the financial statements and any tables in the MD&A, as well as document sections that include financial information. Furthermore, management and legal may work through business overview and business driver areas.
But, if it all comes together, the S-1 is declared effective, and you’ve completed the journey and are now a public company.
Just the Beginning
While it’s quite the accomplishment to become a public company, it is important to remember that this is just the beginning.
After the dust settles, being public makes a company subject to public reporting deadlines. These deadlines will vary based on your filing status—the larger the company, the quicker the turnaround time. Typically, you will get a grace period for the first filing ; the second filing you will have more concrete deadlines.
Becoming a public company also significantly impacts the requirements for internal controls and internal audits. As discussed earlier, management will need to certify that its internal controls over financial reporting are operating effectively as soon as Section 404(a) is required. Management will also need an external audit opinion over the operating effectiveness of the internal controls once Section 404(b) is required.
How Forvis Mazars Can Help
Given the lead time needed to prepare your company for an IPO, it is never too early to begin looking into this transformational journey. The team at Forvis Mazars is here to help you through every step of the IPO preparation process.
We can assist with conducting an IPO readiness gap assessment and work through key pre-transaction and post-transactions areas, including financial reporting, technical accounting, internal controls, operational processes, and technology. For more information, please reach out to a professional at Forvis Mazars.