November 13, 2018

Supporting the CFO Through the IPO Process Is a Big Task for Controllers

Controllers Supporting CFOs IPO

During the interview process for the job of corporate controller at Borderfree Inc., Scott Paterniani, CPA, was told by the company’s CFO, Ed Neumann, that he was focused on operations, scaling the business, and other strategic initiatives, and he needed someone with recent experience with an initial public offering and the Securities and Exchange Commission to do a lot of the heavy lifting in and around those areas.

Borderfree, a New York-based e-commerce technology company, had approximately 80 employees in late 2012 and revenue of $80 million, according to Paterniani, and the company was exploring the opportunity of going public. Paterniani had spent more than 10 years working in Grant Thornton’s assurance practice in New York City, and several of his clients had completed IPOs, the last of which was Tumi Inc. in April 2012.

Members of accounting and finance departments discuss every angle of the IPO process. Read more.

“It was shortly thereafter that I decided I was going to move on from Grant Thornton with the expectation of finding the right opportunity that fit my background and had the potential of an IPO at some point in the future,” Paterniani recalled. “I was introduced to the CFO at Borderfree in fall 2012. The opportunity checked off every box I was looking for, and I began working at Borderfree in February 2013.”

While the CFO often is the face of the IPO, the work of the corporate controller and his or her team to support the CFO during that rigorous process is invisible to the outside world.

“The controller certainly plays a critical role in all aspects of an IPO and, from experience, feels a tremendous amount of pride and accomplishment when the company goes public,” said Paterniani, who currently is vice president and corporate controller at Wheels Up, a membership-based private aviation company based in New York City. “However, in order to bring a company from the startup/emerging growth stage to attending the market bell ceremony at Nasdaq, especially within a 13-month window like we did at Borderfree, there are too many unsung heroes to count.”

“A successful IPO is a team effort. It has to be a team effort,” added Cary Morgan, controller at Utah Tank & Trailer, a West Valley, Utah-based company that specializes in tanks and equipment, who was vice president corporate controller at Chordiant Software Inc. in Cupertino, Calif. when it went public in February 2000. “Controllers are the main go-to people for numbers, but without the team, the IPO process will be delayed, potentially costing the company millions in valuation.”

Managing up

Paterniani understood what the CFO’s expectations were for him and his team before he embarked on his first IPO as a corporate controller in February 2013. This included, among other things:

  • Overseeing relationship with Borderfree’s auditors and other partners;
  • Scaling the accounting and financial reporting function up to the level required of an SEC filer;
  • Building out a new, automated general ledger solution while integrating supplemental solutions to support the business and its expected growth;
  • Reducing the month-end close from 35 days to less than 10 days;
  • Managing the initial documentation of internal controls (Borderfree filed confidentially under the JOBS Act as an emerging growth company and was able to defer SOX compliance.); and
  • Communicating to the audit committee.

But Paterniani also tried to be proactive in other aspects of the business outside of his direct responsibilities and the IPO process to “try and take whatever I could away from the CFO to free him up as much as possible.” This approach of “managing up”—staying a couple steps ahead of your direct supervisor—was something he took away from his public accounting experience.

“This included drafting and reviewing committee minutes, acting as an intermediary between other departments and the CFO and elevating only critical items for his consideration, communicating to the auditors and other partners that I was their key contact for any and all issues, and any other opportunities that came up to add to my own experience while limiting the amount of unnecessary distractions for the CFO,” he added.

All that hard work paid off for Paterniani and his team, as Borderfree went public on March 24, 2014. Although there were ups and downs along the way, Paterniani said there wasn’t anything that occurred during the IPO process that really caught him off-guard.

“There were unexpected issues that came up throughout the process, but nothing that surprised me,” he said. “Overall, although I may have tempered my initial expectations, the overall satisfaction of completing the IPO, operating as a public company, and then catching a healthy exit when Pitney Bowes acquired Borderfree less than a year and a half after we went public was just about as good as it gets. It’s going to be difficult trying to duplicate that experience before I retire.”

“Glutton for punishment”

The number of IPOs in the United States has dropped from its peak in the 1990s. There were 275 IPOs in the United States in 2014, the most since 2000, but 2015 and 2016 were down years (170 and 105 IPOs, respectively), according to data from research firm Renaissance Capital. The 2017 U.S. IPO market rebounded slightly, as there were 160 deals, with proceeds nearly doubling to $35 billion, and 2018 is off to a good start.

The problem with there being fewer U.S. IPOs since the turn of the 21st century is there are fewer CFOs and corporate controllers who’ve been through the IPO gauntlet. Therefore, a controller might only get one crack, maybe two, at working on an IPO in his or her career.

“Perhaps I am a glutton for punishment, but I enjoyed the process and hope to have a leadership role in another IPO someday,” said Britt Jeffcoat, CPA, a former public company chief accounting officer and current financial consultant, who was senior assistant controller at JP Energy Partners in Irving, Texas when it went public in October 2014.

Jeffcoat, who was exposed to the IPO process while in public accounting at Arthur Andersen and Grant Thornton, was vice president and assistant corporate controller at Sun Healthcare Group in 2010 when it spun off its real estate assets, thereby creating a separate publicly traded company—Sabra Health Care REIT.

Jeffcoat was hired by JP Energy in October 2013 after the IPO process had started, but the IPO was delayed for a brief time due to issues in internal controls, financial processes, and technical accounting, he said.

“Because I already had significant knowledge in a public company environment from my Sun Healthcare experience, JP’s controller was able to plug me into a number of different circumstances to drive solutions to the issues encountered during the IPO process,” Jeffcoat said.

Jeffcoat said he and the corporate controller supported JP Energy’s CFO by being committed to the project and staying flexible throughout the IPO process.

“Our job was to address the issues that arose and provide the data necessary to accurately portray the company’s results and future prospects,” he said. “I believe we made the CFO’s life easier by giving him confidence that our aspects of the IPO process were being responsibly addressed in a competent manner and that the work was completed timely. Meeting deadlines and staying on schedule are a huge part of the process.”

Experience gained

One of the expectations Jeffcoat had before the start of the IPO process, which eventually became reality, was being able to gain new experiences.

“I looked forward to getting through the process and confirming what I thought to be true about the IPO process: that IPOs are demanding but certainly attainable,” he said. “I encountered new challenges with certain technical accounting matters associated with unusual transactions that I had not yet experienced. I was faced with external audit requirements having a heightened sensitivity due to the transaction. IT system constraints and internal control matters also contributed to challenges.”

Gaining experience also was one of two main expectations Morgan had before going into the IPO process with Chordiant Software, with the other being hard work.

“Working with our small internal team, our outside legal counsel, our auditors, and our printers provided an incredible learning experience,” he said. “Sometimes we got caught up in the weeds wondering if a comma was in the right place or how to round a penny. During the final filing days, there were times I never made it to the office. Instead, I went straight to the printer’s office.”

From the onset of the IPO process, Morgan knew he would be the back-office help, providing schedules and numbers to the CFO, CEO, and others who went on the IPO roadshow to pitch the company to potential investors.

“This meant I had to work on their time schedule, whether they were in Europe, on the East Coast, or wherever,” he said.

It also helped that Morgan had a great working relationship with the CFO, he noted.

“I had worked for him at several other companies, so I knew what information he liked and would need, plus the format he liked,” Morgan added. “For example, we had a multiple ‘what if’ scenario spreadsheet that included the complete operating cycle, such as sales bookings, sales rep ramp up to full quota productivity, revenue recognition, accounts receivable days sales outstanding functionality, days payable functionality, balance sheet, income statement, and cash flow forecast. It was all linked together.”

Two IPOs, two similar processes

Robert Day, CPA, CMA, CGMA, has had two IPO experiences as a corporate controller—one as vice president and controller at SI International in McLean, Va., which went public in November 2002, and the other at KeyW Corp., a Hanover, Md.-based provider of national security solutions, which went public in October 2010.

“The IPO process for both companies was very similar—gathering all of the necessary data, knowing what type of questions the SEC might ask, and being able to provide that support in advance,” said Day, who has been corporate controller at KeyW since June 2010. “Because both companies were growing through multiple acquisitions, it was important to know what information was required for each of the acquired companies and how far back that information had to be collected for each entity.”

Even though SI and KeyW had the goal of going public within a certain time frame, both companies were advised to go out much earlier than had initially been planned, according to Day.

“In both instances, the decision to go out was market-driven,” he said. “We had been in discussions with our underwriters to go out at a certain date in the future when government contractor IPOs started being viewed very favorably and it drove us to go out earlier than we had planned. The biggest difference between the two time frames was the size of the company—we wanted to be larger before the IPO—which ultimately drove the IPO stock price. As a smaller company, we could not get the stock price we initially were hoping to achieve.”

The process to complete Form S-1 is very data intensive, and in KeyW’s case, the company had acquired 12 companies in a three-year span before it went public, making the data collection and presentation even more complicated, Day noted. And the CFO would need to review the information that is prepared for him.

“The S-1 filing requires so many years of historical data, and we needed to bifurcate that data between the time we owned them versus the time we didn’t own them, depending how far back we needed to present. Where the importance of the controller’s role becomes very apparent is at the integration stage of each of those acquisitions,” Day said. “If the financial data is not integrated correctly from the very beginning, such that the entities’ data can be evaluated both independently and on a consolidated basis, you will never be able to provide the detail needed for the tables in the S-1 filing. Once the process does start, being able to retrieve the appropriate data for the correct historical perspective is critical. It is the controller’s responsibility to prepare the document with accurate financial data so the CFO can review for context and comparability.”

In a future article, we’ll explore how corporate controllers prepared their accounting and finance teams for the IPO process.

How automating the month-end close process can help companies planning for an IPO meet their SOX compliance needs. Read more. You can read more about Going Concern’s partnership with FloQast here.

Image: iStock/DNY59

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Non-Profits Are Feeling the Pain

WSJ has a Monday piece “Once-Robust Charity Sector Hit With Mergers, Closings” (the Recession Forces Nonprofits to Consolidate) that may be found here. It tells the story of a “homeless” woman with terminal lung cancer and a charity no longer able to afford to help her out. Sad.

When one charity’s COO says “we’ve had funding cut after funding cut, and we never know when the next shoe is going to drop,” that is a bad sign.

Hit by a drop in donations and government funding in the wake of a deep recession, nonprofits—from arts councils to food banks—are undergoing a painful restructuring, including mergers, acquisitions, collaborations, cutbacks and closings.

“Like in the animal kingdom, at some point, the weaker organizations will not be able to survive,” says Diana Aviv, chief executive of Independent Sector, a coalition of 600 nonprofits.

I saw that on the Discovery Channel and it wasn’t pretty.

Note: the Service says the value of your blood is not deductible as a charitable donation but cars are. As of 2005, cars are only deductible at FMV, not Blue Book. Damn you, fair value, foiled by the free market again!

Blame the Service for tightening its charitable donation rules at the worst possible time? Not sure on that one. While you’re reluctant to donate your $200 Toyota (ha) to charity because you could have claimed $2,000 under old rules, find some comfort in the fact that (alleged) terrorist “non profits” can not file for 2 years and somehow get away with it. You wonder why I advocate fixing the system from the ground up?

You can text $10 to Haiti but what about the “Economic Homeless” here in America? asks Young Money.

If this were a survey and you asked me “What do you think the IRS could do to encourage charitable donations?” I would answer “Tax breaks. It isn’t the Treasury’s job to distribute bailouts.” Yet they continue to behave as though it is their duty.

See the problem yet?

Hallelujah! Church Accounting Miracles!

I had no idea how much a minister can make but now I do. Wait a minute, this just tells me how to bypass Service rules by writing checks in the church’s name. I might totally be in the wrong line of work.

Free Church Accounting (I’m not kidding) brings us a question from “Sharon” of Corsicana, Texas:

How much money does a minister have to make in order for money to be reported?

I started my church back up after 12 years vacancy. I do not have very many members. Right now we are 3 active members and other people stop in from time to time. I do not actually receive money. Since the church is striving I use the money to pay the light bill, get the grass moved.


According to the IRS website, “Earnings of $400 or more are subject to self-employment taxes.” (that includes qualifying ministers)

If you are a church employee, income of $108.28 or more is subject to SE tax.

It would be better for you, if you opened a checking account in the church’s name and paid expenses out of it. If that’s not possible, just make sure and keep all of the receipts that show where the church funds are going.

Fascinating! I took the preliminary “Are You a Tax-Exempt Church” quiz on their website and failed miserably so I guess I’d make an awful 501(c)(3) but that’s probably for the best.

There are ways to fail at this of course, like the Spokane, WA priest who couldn’t keep his arms and legs (and other parts) inside of the vehicle at all times, financial mismanagement in the University of North Carolina system, and JDA favorite the University of Colorado’s wild credit card user with horrible hair.

I would never imply that more regulation is the answer; I’m merely pointing out that there’s a bit of work to be done in identifying non-profit fraud. Seriously, how can one detect fraud when the core basis of fund accounting is an imbalance between “expenses” and expenditures?

The Church of Jr Deputy Accountant Scientist? I’m down.