It has been a landmark year thus far for tech and software IPOs with multiple unicorns (WeWork, UBER, Zoom, Slack, Lyft, CrowdStrike) filing already and plenty of other potential unicorns poised to file later this year (Airbnb, Palantir, etc.). Tech and software companies have dominated the news cycle for their valuations, and rightfully so, as they are largely responsible for the expected IPO market total to eclipse $200 billion in 2019.
In this blog post, we’ll briefly explain how NetSuite ERP can be used during a software IPO to increase company readiness. It can help support efforts to assemble your IPO team, get financials in order, and increase scalability.
Assemble the Right Team
Preparing for an IPO can be a long and arduous process, like turning a luxury cruise ship in a shallow lake, but assembling the right team can help streamline and simplify things. Teams generally feature a mixture of management and subordinate roles, and ideally, some have experience at public or fast-growing companies. This might require upgrades at certain positions to ensure that your company is adequately prepared to handle the performance requirements and scrutiny experienced by public companies. Teams can include an SEC reporting manager, director of investor relations, heads of financial reporting, controller, treasurer, auditor, etc.
Best practices also suggest carefully evaluating your company’s board as many new software and technology companies have investors with little IPO experience. Executing a transition that includes a healthy mix of independent board members could help comply with SEC and stock exchange guidelines, and fresh perspectives can help make the company better. People with IPO experience will have wisdom and insight that can help guide the company.
How can NetSuite help support us as we assemble the right team?
NetSuite provides nearly 100 pre-built reports and pre-configured roles with dashboards and business intelligence metrics. Each member of the internal IPO team can have a customized role, and view of key performance indicators (KPIs) via real-time dashboards. They can also generate reports with metrics specific to their tasks and responsibilities associated with the IPO process. NetSuite unifies all core business processes, including ERP/financials, HR, CRM, inventory management, and much more, so everything can be accessed via one secure interface. Management and key personnel can drill into specific areas within NetSuite and quickly determine whether there are opportunities or deficiencies.
Board members will also benefit from the KPIs and dashboards from NetSuite as these can be customized to meet their needs. They can receive view-only access to examine performance metrics in real-time throughout the IPO process, empowering them to provide timely guidance that is backed by data.
Get Your Finances Ready for a Software IPO
Companies preparing to file for an IPO need a solid financial foundation well before submitting form S-1 and the prospectus (aka the red herring). In fact, three years of audited financials are among the many requirements, and everything will be subjected to close examination by the Securities & Exchange Commission along with the public. ASC 606 is a relatively new revenue recognition standard that can trip up software and technology companies as the deadline for non-public entities to implement this standard was mid-December 2018. It can be especially tricky during a software IPO. Compliance with ASC 606, EITF 08-01 and 09-03, and a host of other standards is necessary to function as a public company. To further complicate things, public companies are required to issue quarterly reports to the SEC, investors, and the public so speed and accuracy are critical. Elimination of manual reconciliation and as many other manual processes as possible is vital to a successful IPO.
How can NetSuite help organize your company’s finances before an IPO?
NetSuite ERP is the perfect financial multitool for the IPO preparation process. As proof, around one-third of companies that filed for IPO between 2017-2018 were NetSuite customers, and that number continues to grow as you read this blog. Companies with NetSuite receive access to a robust compliance foundation that includes a wide variety of reports and certificates to address risk and control expectations while also ensuring accuracy. It comes equipped with continually updated audit trails that can be customized and quickly investigated by auditors and management to uncover activities that may impact controls, financial statements, or security.
Specifically regarding ASC 606, NetSuite is a subscription-based software company, so it has first-hand experience with challenges adjusting to this updated standard. As a result, NetSuite ERP software was updated to address ASC 606, so it is easier for customers to manage this complex process. NetSuite also includes tax compliance across more than 50 countries and multi-currency management support for nearly 200 currencies and exchange rates for companies operating internationally.
In addition to compliance, NetSuite ERP can help eliminate manual and inefficient reconciliations and financial close processes. Companies can synchronize complex order, billing and revenue recognition processes with fewer errors, and in a more timely manner. The financial reports are flexible as NetSuite’s Financial Report Builder enables users to customize reports for any requirement. And each report contains real-time data. Increased efficiencies and accuracy will alleviate the stress that comes with preparing for an IPO, and with issuing the quarterly reports once the company is public.
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Show Scalability to Prove Your Company is Worth the Investment
To prove scalability, your company needs to show that it can handle more complex transactions and that it is capable of adapting to the challenges of a public company. The patchwork quilt of systems that got you to your current position probably won’t get you where you want to be, at least not in the eyes of potential investors. Continuing to use disparate systems and unintegrated third-party applications is risky as there are different upgrade cycles and patch requirements, security vulnerabilities, and the threat of data loss as your company grows. Investors want to see that your whole company functions like a well-oiled machine, and this goes beyond accounting and financials. Inefficiencies in one area can impact the valuation of your company as it faces the probing eyes of the SEC and the public so it might make sense to migrate or upgrade to more unified, scalable systems.
How will NetSuite help with scalability ahead of a software IPO?
NetSuite is a fully-integrated business management suite that is used by thousands of software and technology companies every day across the globe. In addition to the financials mentioned in the section above, its modular design allows businesses to quickly add and remove modules on an as-needed basis so it can grow or consolidate as your business does. CRM, inventory management, HCM, ecommerce, inventory and manufacturing, and much more are all natively integrated. All customizations are carried through each upgrade to minimize potential disruption to your business, and it is cloud-based, so NetSuite is accessible anywhere around the world with an internet connection. NetSuite also supports multiple subsidiaries and currencies across global operations, so your company is empowered to expand internationally. These are also compelling factors that can be leveraged by executives during the roadshow to attract interest from the investment community.
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