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While significant energy and management time is invested in completing the S-1 and obtaining U.S. Securities and Exchange Commission approval of the prospectus, this is just the beginning of a journey that will be full of new and unexpected challenges. Here we highlight ways to address issues in the post-IPO period, build trust and tell the company story.
Managing Expectations
As your company spreads its wings in the public arena, it is critical to manage the expectations of your stakeholders. With the CEO as the key spokesperson, your message should be short, precise and consistent across your constituencies—the Board, shareholders, debt holders and employees. The message should also include answers to the following questions:
- Where are we now?
- Where are we going?
- How will we get there?
- How will we measure success?
These questions provide a framework that explains the effect that new economic or market conditions could have on your goals and how you will react to these changes. They might also uncover a need to revise your strategies and seek a different approach moving forward. In addition, by using ranges for expected financial outcomes built on realistic assumptions, you will be more equipped to find a consistent way to address expectations and deliver performance.
The Need for a Robust Forecasting Process
Managing expectations requires a good forecasting tool to help you calibrate performance, and should be based primarily on the key business drivers highlighted in your S-1. Drivers could include new order intake, new product introductions, price increases, headcount investments and working capital to support growth and strategic initiatives. By using operating management reviews and reforecasting to calibrate performance, executives are more accountable for their performance, especially if the new forecast includes the impact and timing of corrective measures. This “closed-loop” forecasting method will help you manage expectations and deliver results over the medium term.
Analysis and the MD&A
Analysis is too often based on the reporting of a variance from prior actions or plans with limited explanation. By utilizing a robust forecasting process, your credibility will increase by explaining variances, while highlighting the measures that you have implemented with explanations of expected results. Use the MD&A to provide insight into key drivers and how your strategic actions are impacting performance.
A New Financial Reporting Focus
As a new SEC registrant, you must recognize the need for new reporting metrics such as net income and earnings per share. Many private companies utilize EBITDA or adjusted EBITDA as their primary performance indicator. Tax rates and actual interest charges are now a critical part of the reporting matrix deserving more emphasis and scrutiny within the finance function. Use the external reporting requirements as the basis of all your financial performance presentations to all constituencies and discard the old set of reporting criteria to prevent any confusion.
Building Trust
Most investors depend upon recommendations from analysts who have built economic models to project potential earnings streams. Your communications should help analysts and shareholders gain a better understanding of the key dynamics facing the company. In order to build trust and meet the expectations of analysts and shareholders, the CEO must lay out the vision and goals of the company and ensure that the management team delivers.
A company’s ability to effectively tell their story and build trust by meeting expectations is critical in the post-IPO period. Focusing on the above areas will direct you in the first year beyond the IPO.
Linton Moulding is a partner at Tatum, a Randstad company.