If you want the straight story on what it’s like taking a company public, Mike Ellis has some thoughts for you. At the CFO Leadership Conference in Boston on Friday, Ellis, named a Boston Business Journal CFO of the Year, offered an inside look into how a CFO prepares a company for an initial public offering and life as a public company.
In March 2021, Ellis steered Flywire, a global payments software company, through its IPO. Although a self-described “classically trained CPA” with years of experience as a CFO and a controller, it was Ellis’ first experience leading an IPO.
Ellis called going through the process “a lot of fun but hard work.” His seven nuggets of advice below can help chief financial officers handle some inevitable challenges.
The company’s key performance indicators (KPIs) and metrics are critical
“There are two things you’re going to get beat up for as a CFO of a public company: your ability to forecast and the credibility you bring communicating your metrics to Wall Street,” said Ellis. Management should not necessarily focus on what it historically reported to investors; the metrics may have to change. Getting the company’s KPIs correct before the roadshow is critical. “Once you give a KPI to a public investor, you never get to take it away, you have to give that calculation, and it has to be consistent every time, month in and month out,” Ellis said.
Don’t use the word 'exit'
An initial public offering is not an “exit,” said Ellis, who admits using the term to describe an IPO is a pet peeve. “The company is preparing for a new birth; an IPO is only an exit for the existing shareholders,” he said.
Ellis recommended not using the word, especially when talking to employees. “The only thing that’s changing is the company will have new shareholders and a lot more diligence,” he said.
Before an IPO, or any capital raise, the most crucial question the CFO will be asked is, “Are we ready?” said Ellis. “The worst thing that can happen to any CFO is to attend the board meeting, and the investment bank says, ‘You have a great business. But you’re not ready,’” Ellis said.
How do you protect against that? By building the tools, systems, and controls (and adding the right people to the finance team) 12 to 18 months before the company begins the process, said Ellis. “You have to be prepared before you even get asked that question.”
Ask for help from other finance chiefs
Part of preparation, especially if it’s the CFO's first IPO, is to lean on other CFOs, particularly those with experience running public companies. Questions will pop up about issues like compensation, public company governance, or dealing with the board of directors, for example.
After four quarters as a public company CFO, Ellis still regularly calls a fellow, more experienced public company CFO. “This is where some CFOs tend to be introverted,” said Ellis. “Get out of your comfort zone, talk to people, reach out to that CFO on LinkedIn that you remember from 10 years ago.” An individual CFO doesn’t know everything, he said. And “people like to help — it makes them feel good. And you get value out of it — it challenges the way you’re thinking.”
Build the critical areas of the finance department early
FP&A and tax are two functions Ellis said the CFO needs to establish well before the company goes public. If there’s anything Ellis did wrong in preparation for Flywire’s IPO, it was not shoring up the tax function sooner, he said.
“There were a lot of tax exposures that I had no idea existed,” he said. However, what Ellis did right was build the FP&A function well in advance. “That was critical, as we built credibility with the board of directors and our investment bankers,” he said. A solid FP&A function means finance can communicate the business’s long track record of meeting performance goals.
Be prepared to 'sell' the story
When Flywire was testing the waters and practicing its roadshow presentation, the CEO told Ellis he needed to “sell more” when he was presenting. During a roadshow, the CFO has to “spin, sell, and move the conversation,” Ellis said. The only way a CFO can do that is by being prepared, he said. “You have to know the information. Read the script, rewrite the script, reread it, rewrite it again, commit it to memory,” said Ellis.
You can do it
“There’s nothing more frustrating than when someone tells me, ‘You can’t do that,’” said Ellis. But the board of directors will inevitably ask if you are the right CFO to take the company public.
“Should we get someone who’s already done it before?” is a question a private company CFO should be prepared to hear. A good response? “Yes, I am ready, and I want your support,” said Ellis.
The CFO should position themselves so that the board and the rest of the executive management team know they are thinking about optionality for the business. “Build yourself up over time to go after [taking the company public], if that’s what you want,” said Ellis. “Act like the company is public today, have that mindset,” he advised.