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due diligence

Many private firms consider an initial public offering (IPO) as a strategic way to expand their business. However, this is a complex process and comes with a significant risk. It requires a meticulous plan and strategic thinking to ensure long-term success.

In order to prepare for an IPO the first step is to create and communicate your equity narrative. This will inform investors how you intend to create value and how your business is differentiating itself in the market. This is vital for establishing an attractive valuation and attracting the interest of analysts, investment bankers and underwriters.

The next step is to review the leadership team and management. You want to make sure that your management team is capable of managing an IPO as it is a risky undertaking. An IPO for instance, can have additional tax implications and financial reporting requirements, which may require the hiring of a finance or a tax specialist to your executive team. It is also necessary to decide if you want to have dual-class stock, which grants the founders and the top managers different voting rights.

A strong track record of financial control and accountability is essential for an IPO. This includes having a well-defined SOX program, which should be in place and updated before the IPO. It is also necessary to check your existing system of records. This includes minutes, capitalizations files material agreements, as well as older option grants. This is crucial for meeting SEC and bank underwriter requirements. You should find out whether your company has “material weaknesses” so that you can improve them prior to going public.

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