3 Ways to Begin Building Trust with Investors Before Your Company Goes Public

Transitioning from a private company to a public entity is a difficult undertaking. Earning and maintaining investor trust can be even more challenging.

The good news is that preparing well ahead of time can help your business attract and keep the right investors. Below, we’ve identified three key strategies (and practical ways to implement them) for building trust with investors before your company goes public.

1. Review Your IT Policies, Security and Inventory

Public companies are subject to rigorous data security requirements. Having an understanding of and complying with these requirements early demonstrates your commitment to protecting your investors’ interests and safeguarding your customers’ sensitive information.

Before you take your company public, make sure your organization has formal policies and procedures that address IT security management and incident response.

Conduct an IT assessment to identify security gaps, and use the results of your assessment to implement best practices and mitigating controls to ensure your IT practices comply with regulations and industry best practices.

Whether you conduct these assessments internally or work with a third-party, pinpointing these weaknesses lets you take proactive measures to address them before they become problems. When your investors can see that you take proactive measures to mitigate risk, it builds valuable trust.

It’s also important to maintain accurate and complete listings of your company’s IT assets. As all businesses grow in their reliance on technology, accurate asset inventory listings will help to risk rank your most crucial assets that store sensitive data. Plus, having a complete and accurate IT inventory can help you maintain your assets well throughout their lifecycles.

2. Review and Document Your Business’s Processes, Policies and Controls

Review your processes throughout the organization to ensure proper segregation of duties are maintained and key internal controls are in place.

Are there areas where you could benefit from automation? Do you have a proper plan for team transitions? Are you lacking necessary policy documentation?  Are risks known and mitigated to the appropriate level?  Do key controls exist in significant processes?

Understanding your processes (and how they interact with each other) allows you to effectively manage risks, improve efficiency and show investors that your company is well-prepared for scalable growth—and it helps your employees understand and consistently follow policies.

As a result, having reliable operations and efficient processes will be attractive to your investors as a sign of stability. Streamlining your company’s processes can improve productivity and lower expenses, showing your investors your commitment to operational excellence.

This is also a key opportunity to review your internal controls. Identifying and addressing gaps in your internal control environment—including financial reporting, procurement and general IT controls—helps prevent fraud, errors and inefficiencies, which is crucial for building and maintaining investor trust.

Document your current processes, catalog your existing internal controls, compare them to best practices, identify any deficiencies and develop strategies and mitigating controls to address those gaps.

A risk/control matrix can map out your organization’s risks and the controls used to address them. Start with identifying and classifying your internal controls into key and non-key controls, and then prioritize, ensuring key controls are designed and operating effectively.

Testing your internal controls is also critical to ensure compliance and operational integrity. Conduct Sarbanes-Oxley Act (SOX) readiness testing to confirm controls are functioning as intended and identify areas for improvement.

While private companies are not required to comply with SOX provisions, adherence is critical for public companies.

3. Clean Up Your Past Financial Records and Implement Future Modeling

Inaccuracies in financial records could lead to legal problems, regulatory issues and a loss of investor trust. Cleaning up your financials before taking your company public displays a commitment to transparency and integrity, and it builds trust with investors.

Before taking your company public, perform a comprehensive review of all your financial records. This review should include:

• Verifying all revenues and expenses are accurately recorded
• Ensuring all processes and controls around assets are appropriately documented
• Confirming you are correctly tracking all cash inflows and outflows
• Cleaning up accounts receivable and accounts payable
• Reviewing fixed asset schedules to confirm completeness and accuracy
• Ensuring assets, liabilities and equity are appropriately documented and accurately valued

Additionally, accurate financial statements are a foundational part of the initial public offering (IPO) process because they provide critical information about your company’s financial position and results of operations.

If you’re not already preparing your financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP), it’s time to start. Accurate, comprehensive and GAAP-ready financial statements demonstrate your company’s financial integrity.

Once your historical financial records are up to par, consider implementing financial modeling. Financial modeling involves creating detailed projections of your company’s future performance, and it provides investors with valuable insights into potential growth and profitability.

Base these models on realistic assumptions, and regularly update them to reflect changing market conditions, strategies and business goals.

Learn More and Connect with an Advisor

A critical aspect of gaining investor trust is demonstrating that your company operates with transparency, integrity and sound governance. Investors need assurance the company is well-managed, financially stable and capable of complying with strict public regulatory requirements.

Addressing the areas outlined above lays a solid foundation for investor confidence, but it’s just the start.

Is an IPO in your future? Warren Averett can support your organization as you evaluate your technology, processes and financial reporting ahead of your transition. Connect with a Warren Averett advisor today to get help preparing for success.