An IPO is an exciting time for any organization. It can open access to new sources of capital, increase brand recognition and provide stability. It also presents new challenges and requirements around reporting, compliance, and governance – not to mention the increased scrutiny that comes with having shareholders.
Revenue and the accounting, forecasting, reporting and compliance requirements that revenue impacts, is an important part of preparing for an IPO. Just recently, video game maker Roblox made the news when they restated their financials and pushed back an IPO twice following inaccurate revenue numbers in their financial statements and concerns over revenue recognition practices.
For companies considering IPOs, there are several ways implementing an automated revenue management program can help smooth the transition. Here are the 4 key benefits of automating revenue management before IPO.
Ensure accurate and automated forecasting and analytics
Shareholders like to see predictability. In addition to showing consistent growth, the ability to demonstrate that your team accurately forecasted that growth is important. It provides trust and confidence in future performance. Likewise, having access to robust analytics and the insights that good data can drive, shows that leadership deeply understands the business and can identify areas of improvement and innovation.
For one Aptitude client, the adoption of revenue automation and compliance solution, RevStream, was driven by their goal of creating a centralized revenue management program to enable an IPO. The ability to automate existing manual processes and provide more detailed revenue analysis and reporting was critical to achieving their desired outcome.
Meet compliance requirements
While private companies also must adhere to various compliance regulations, public filers garner considerably more scrutiny. When the new revenue recognition standards, IFRS 15 and ASC 606 became effective in 2018, it drastically changed the way organizations accounted for revenue and many public companies stumbled in their adherence to the new rules. One assessment found that “revenue recognition issues drove more restatements in 2018 than in prior years and caused more restatements than any other area of accounting, overtaking even debt and tax issues as the most common cause for restatements in 2018.” (source)
With a smart revenue solution, accounting across multiple methods and reporting standards is automated, allowing you to walk between the varying GAAPs and statutory requirements for both actual results and forecasts. Automated revenue management can also lead to a more consistent company policy application, reduced risk and better transparency for auditors, investors, and business leaders. No company wants to grace the front pages for accounting issues and financial statement errors.
Demonstrate strong financial controls and governance
There is little room for error or missteps for public companies. Issuers must be able to produce accurate, quarterly financial results with the ability to explain accounting approaches and financial inputs as requested by auditors and other stakeholders. Going public “holds companies to a higher standard of accountability - for financial discipline, disclosure, planning and delivering to plan, and even strategic direction...In order to do this well, a company needs to have appropriately skilled financial staff and financial policies, procedures, and systems in place.” (source)
Organizations that are highly dependent on manual processes or lack the financial controls of an automated system may struggle to meet reporting deadlines and place themselves at an increased risk for human error.
Establish a platform for future M&A activity
One significant driver of going public is the desire to acquire companies. This acquisition activity is fueled both through the initial proceeds from the IPO but also through the use of an acquisition currency that is used to raise capital for both cash and stock financed acquisitions.
Having an automated revenue solution can help address the complexities of acquiring a company. One Aptitude client was anticipating a significant increase in contractual complexities as a result of an acquisition they were making. This client already spent tens of millions closing their books with the assistance of a team of consultants and decided to implement Aptitude RevStream to reduce costs and risk and reduce the manual burden on their finance team.
Revenue automations isn’t just useful for pre-IPO companies – any major change such as merger or acquisition can benefit from automating first. A robust revenue management solution can also be helpful for acquired companies operating as independent subsidiaries.
Red Hat has been an Aptitude RevStream client since 2014 and when they were acquired by IBM, Declan O’Donoghue, Senior Principal Analyst at Red Hat noted in a recent webinar that while the acquisition “presented many organizational and business challenges, including intercompany accounting. From a revenue perspective, RevStream gave us the flexibility to move through the process of the acquisition itself - no code changes were made - everything was done internally using the flexible configurations available in the system and everything was fully automated.” Red Hat was also able to quickly adapt their reporting to meet IBM’s requirements without manual intervention.
For more information on the value of revenue management: