By Tony Tiscornia, Chief Financial Officer at Coupa.
Having gritted their teeth to emerge from the global COVID-19 pandemic, businesses now face fresh economic uncertainty. We saw a boom of IPOs in 2021, a record year by most accounts, yet as we enter the second half of 2022, IPOs are meaningfully down from last year and the threat of a new recession looms large.
In the current economic climate, it is of course sensible for leaders to gain a deep understanding of all aspects of their businesses and evaluate various risks. But it is also important for businesses to find inspiration from their recent resilience and agility, as well as examples from the past, to emerge stronger from this latest set of challenges. These too shall pass and, when they do, businesses must be well-positioned and ready to capitalize.
It’s important for business leaders to ensure that delaying their IPO does not mean delaying preparation for an IPO. Companies that decide to push back their planned listing for any reason should take advantage of this time to get their financial processes in order.
The case for positivity
Major success stories have been born out of similar circumstances to those we face today. Lego is one example, having successfully navigated the 2008/9 recession, turning its fortunes around from near bankruptcy in 2003 to becoming one of the world’s most successful brands a decade later. Major businesses like Airbnb, Asana, Slack and Uber also launched and found huge success during the same crisis.
Looking further back, Microsoft and Apple were both forged during the recession of the 1970s and launched soon after. This seems to have instilled a positive and proactive attitude to economic uncertainty, with Tim Cook confirming that Apple ‘believes in investing during downturns’. Cook also previously ruled out cost-cutting measures in response to economic difficulty, as part of the company’s long-term strategy.
The World Bank has found several similarities between the financial troubles of the 70s and those of today but, crucially, finds cause for optimism too. The U.S. dollar is far stronger now than it was back then, and financial institutions find themselves in a position of relative strength. In addition, central banks now have clear mandates for price stability and can boast a three-decade-long track record of achieving inflation targets.
As a company that emerged stronger from the great recession of 2008 and has demonstrated resilience and agility amid the recent pandemic, Coupa understands first-hand that no two crises are the same. We also know what it takes to build for scale and to successfully IPO, having done this ourselves and having helped many companies, such as Uber and Slack, do so as well. As a result, we set out to understand exactly what challenges and barriers businesses face today, and share those insights so that business leaders can take stock and prepare to reignite their acceleration plans as soon as it’s right for their organization.
Growth in the current climate
We conducted a global survey to investigate the financial readiness of companies looking to IPO. The headline finding revealed that nearly 80% of fast-growing businesses have delayed or are planning to delay their IPO, with the majority expecting to postpone it by between 6-18 months.
Despite this, demand for growth is high, with half of all companies polled (51%) expecting to grow revenues over the next two years by at least 30%. This is a highly encouraging statistic suggesting that businesses are confident in surviving the latest hit to the economy, with one eye on recovery and growth in the medium term.
However, our research also uncovered that a significant number of businesses have not yet established the right technology, processes and people to successfully IPO. The extra time to prepare that they now find themselves with could end up proving crucial to their growth ambitions.
Modernize the finance back-office
One of the most important objectives for any business anticipating increased operational and reporting demands, as well as requirements from investors and regulators, is to have back-end finance systems that provide a single source of truth for each important area. This instills confidence in financial operations and compliance in advance of being ready to list or seek additional funds, while also easing the burden of operating as a public company.
Our research shows that nearly three in four (72%) high-growth businesses recognize their financial processes are not robust and scalable enough to support their growth plans. Special attention must be given to three key areas in particular: making finance teams more effective, unifying disparate systems, and improving critical last-mile IPO readiness processes and infrastructure.
1. Making finance teams more effective
Companies aspiring to execute an IPO need a strong grip on their finances, yet only 48% percent of financial leaders can access real-time spend and financial data. Several factors contribute to this problem, including financial processes that are still handled manually.
Most survey respondents from companies considering an IPO are struggling with this, as processes like procurement (60%), supplier management (56%), cash management (56%), invoicing (47%) and payments (40%) are still performed partially or totally manually. This can not only lead to mistakes and take up more of the finance team’s time and effort, but also prevents each process or system from integrating and ‘speaking’ to each other.
2. Unifying disparate systems
Another key element to leveraging the benefits of real-time financial data is ensuring that it is not siloed across the organization in walled-off departments, or spread across outdated legacy systems. Our research found that 75% of people need multiple systems just to manage their cash on hand, with 29% having to log into at least 4 different systems to do so. Single, unified, platforms that specialize in integrating financial systems and data can make an immediate impact and should be a priority in modernizing any organization’s back office.
3. Last-mile IPO readiness
Finance leaders are still working on scaling up key last-mile financial capabilities to support their company’s ambitions. Chief of these, cited by 85% of businesses, is to improve their risk management processes and controls to mitigate financial risk, while 67% want to improve financial controls to protect stakeholders and prevent embezzlement. Without effective controls in these areas businesses invite risk pertaining to serious issues that could significantly and negatively affect them. Investors not only want to ensure these measures are in place, but that they’re rigorous too.
Systems and processes are clearly very important, but it’s vital not to overlook the people leading the charge as you approach an IPO. Going public involves a wealth of specialized knowledge of the company, industry, and IPO process, requiring a dedicated team of experienced finance experts to guide and advise the business. As many as 70% of businesses are still building this team out and, given the nature of this role in identifying actions and potential issues, it is a priority to get in place as early as possible.
A cautiously optimistic path forward
High-growth or pre-IPO phases are major stress tests for any organization, and a market environment like the current one only adds complexity and uncertainty. But most businesses have been here before, very recently, and some may even have an additional recession or two under their belts. Others still have emerged from trying times stronger than ever.
Caution is obviously advised and required, but it should not completely stop an organization’s plans for acceleration and growth. Finance teams can be the anchor in these storms, providing real-time transparency to facilitate management decisions, as well as developing processes and implementing technology to support the way forward.
Ultimately, empowering finance teams with full financial visibility and control helps a business to run more effectively while simultaneously being better prepared for an IPO. This means that for companies delaying their IPO, and those focusing more on margins as macroeconomic pressures increase, now is the opportune time to digitize back-office functions.
Coupa’s full ‘IPO Readiness Checklist’ report is available here.
Join the TechCrunch hosted webinar on 13 September to hear our expert panel discuss the survey findings and share their personal experiences.