5 Common Accounting Bottlenecks on the Road to IPO

Here’s a fact bound to put a lump in your throat: accounting is the #1 reason for IPO delays [The IPO Journey, Connor Group]. Yes, your company’s chance to hit the public market spotlight often hinges on many factors, but more often than not, it falls squarely on the shoulders of the accounting team.

Daunting much? To allay some of those fears, we’ve identified a few key accounting bottlenecks that frequently hinder IPO readiness — fortunately, these aren’t new villains, but the same foes accounting teams are used to facing with just a bit more urgency than usual.

1. Close

Given the difficulty teams face with the close process on a monthly basis, it’s no surprise that the month-end close continues to be a cause for concern with public readiness. The problems teams face don’t change much either — how can we automate processes? How can we shorten the close? How can we provide the most accurate data possible in an efficient way?

What does change, however, is the tightness of the close. The Connor Group defines a public company close in terms of these components:

• All “sub-ledger or sub-system” entries are posted, closed, and reconciled.
• All journals and month-end entries are posted.
• All key balance sheet and key P&L accounts are analyzed and reconciled.
• Financial analysis is completed.
• Management reviews are performed.
• Financial reporting package is completed.
• All of the above is completed within 10 days or less, with zero audit or post close adjustments.
  ‍

Again, while none of these are unfamiliar to the private accounting realm, teams may be lax in their completion of a number of these tasks. Shifting from that perspective to one where all close tasks must be 100% complete in under ten days is certainly a doozy.

Solution: Make an investment in close management software.

If you haven’t already, then incorporating a close management tool will likely be the catalyst for achieving strong and quick closes. In our slightly biased opinion, Numeric makes that possible for modern teams with a number of features that clearly differentiate it from legacy tools in the space:

• Put your processes on autopilot: With a looming IPO and less time for manual tasks, automation moves from a nice-to-have to a clear necessity. With Monitors, you can make the most of your pre-close period by creating flexible, ongoing alerts to catch errors ahead of month-end account recs. If you’re looking to boost productivity, take advantage of automated close dependencies that lock and unlock certain tasks based on the status of directly preceding ones. 
• Reconcile the balance sheet with ease: Getting to full balance sheet reconciliations can be a daunting task for pre-public accounting teams. While wrangling sources for some of those infrequently-reconciled accounts might be a struggle, Numeric helps you handle all your month-end GL recs in one spot. The system automatically pulls account totals from workpapers and your GL's trial balance. Even better, with a deep ERP integration, Numeric users can click into underlying transactions across accounts to investigate. Numeric also monitors prior period balances, flagging any changes since your last reconciliation.
• Manage the close in the modern era: Using an Excel spreadsheet to manage your close might have worked in the past – but as companies approach IPO readiness, the cracks – a lack of audibility, missing reconciliation sources, and general confusion – begin to show. Numeric makes it easy to keep track of all comments, changes, and submissions in a clear month-end close checklist. Beyond that, teams can stay updated on close happenings with dedicated notifications, comment functionality, and Slack updates, ensuring a smooth flow of communication.
• Stay organized with clear controls and documentation: As you start to build a fully SOX-compliant operation, make sure you begin with a strong foundation for existing internal controls. Use custom tags to associate close tasks with a corresponding control, and ensure segregation of duties by designating prepares and up to two reviewers. Further, with view-only licenses, external auditors can log straight into Numeric and see a complete activity trail, no need for your team to spend hours resurfacing required documentation. 

2. Controls

At the Connor Group’s Bay Area IPO Summit, one message stood out: start preparing your controls workflows as early as possible.

The journey to SOX compliance is often underestimated, especially when added to existing accounting tasks. Beyond meeting compliance, companies must also establish an internal audit department, which demands significant hiring and project management from the current finance and accounting teams.

Failing to fully establish controls doesn’t just jeopardize the IPO timeline—it also sets the stage for future accounting issues, including material weaknesses or SEC-imposed fines.

Solution: Assess & remediate your current controls environment.

It’s highly unlikely that a private company has their controls “under control” (we’re sorry) in the ways required of public accounting. Start by assessing what needs to change and when. For example, teams that plan to file as an emerging growth company (EGC) will have reduced regulatory and reporting requirements in accordance with the JOBS Act, allowing for an extended ramp-up to public status from an accounting perspective.

Once teams understand their timelines for being public-ready, they should see what gaps exist in the existing controls environment and begin planning how to shore up these gaps. Connor Group advises accountants to “think like an auditor”:

“What would an auditor identify as the biggest areas of weakness today? What risks might they see a year from now if you don’t enhance existing controls? What controls will help avoid any significant audit adjustments or misstatements?”

3. ERP + tech systems

You’re a Controller whose accounting team has relied on Xero or an industry specific ERP for the last five years. Like any ERP, it has its quirks and challenges, but it gets the job done.

Now, the executive team announces plans to go public in the next 18 months. Take another look at that ERP: are you sure that platform is truly capable of supporting the company at the public level?

Private accounting teams often make do with ERPs or other accounting software that doesn’t deliver top-of-the-line performance. However, with the rigor of public accounting on the horizon, an upgrade may be in order.

Solution: Upgrade, migrate, & integrate your accounting tech stack

Accountants know all too well: onboarding new software can be a real pain. But if your company plans to IPO soon, then it’s time to rip the band-aid off! Some initial hurdles are unavoidable, (although teams should ask the right questions when considering new solutions) but what can be avoided is the stress of not allocating enough time for your team to adapt to a new tool.

If your ERP or other software won’t scale with your needs, then upgrade. If you can find an intuitive solution that can replace manual, spreadsheet-based processes, then migrate. And to avoid creating a Frankenstein accounting system, ensure that any new solutions will integrate well with your existing tech stack.

4. People

Let’s be clear: your accounting team is too small to go public.

“But we’ve cut our close to 8 days!”

Still too small.

“Our processes are like clockwork. Trust us!”

Even if that’s true, you’re still likely too small.

“Our team size is comparable to that of public companies in our industry.”

Understood. But you’re still most likely too small—not for the reasons you might think.

Addressing the personnel side of IPO readiness is a challenge. Some companies simply need more people to handle the increased workload, others need staff with SOX and public accounting experience, and some might have the right numbers but lack critical leadership, like a CAO, to manage the overall accounting operations.

Solution: Invest — internally, externally, or otherwise.

Bridging the skills and personnel gaps on your team can take several forms:

• Upskill existing team members in key areas like technical accounting, revenue recognition, and systems architecture. This can be cost-effective in the short term, though most teams will still need additional hires or external support.
• Hire new talent for areas where you need expertise. Ideal for teams with the resources to onboard new staff, but given the current accounting talent shortage, finding the right fit may be challenging.
• Engage external advisors to manage the workload. This option offers immediate expertise without ramp-up time, though it often comes with high advisory fees.
  ‍

Whichever route you choose, making the decision sooner rather than later will serve your team best.

5. Historical & Current Accounting

When it comes to IPO preparation, improvement doesn’t only take a forward-looking perspective. A team’s accounting past and present play equal parts in determining company health.

IPO registration requires a company’s last 2-3 years of financial data; if these numbers weren’t properly maintained in the prior years, then teams will need to identify their previous errors and correct them. As one can imagine, having to backtrack to re-do past accounting alongside the requirements of current and future accounting can be a slog that extends beyond an accounting team’s present capacities.

To that point, IPO readiness doesn’t mean teams take a break from their day-to-day accounting tasks. If performing a standard month-end close in addition to redoing last year’s financials while building out SOX compliance sounds overwhelming, that’s because it is.

Solution: Tackle existing bottlenecks before anything else.

If your current GL reconciliation process is already a thorn in your team’s side now, imagine how much more of a grind that will be when trying to juggle your concurrent IPO tasks.

For workflows such as these, identify the best path forward — can AI and automation lend a helping hand? Are external advisors needed for re-doing prior year financial statements while your team figures out how to cut down on the close? Whatever the solution, aim to handle ongoing problems in advance of the inevitable tripling of your accounting workload.

The best advice of all? Start early.

Laying the groundwork well in advance gives accounting teams the flexibility to address bottlenecks, refine controls, and scale effectively. By tackling these challenges proactively, companies position themselves for a smoother transition to the public market and set the stage for sustainable growth post-IPO.