Newsletter – May 2014

It Pays to Do It Right the First Time

By Art Finnel, Head of Life Sciences Practice

Prior to joining CFO Consulting Partners, I held a CFO position with a company that was planning to go public and hired a new accounting firm for the audit. The company had planned for this possibility five years before my arrival. Everything seemed in order.  I was going to have great fun, so I thought.

Shortly after joining, we began to prepare for the next audit. During my review, I found that a series of shortcuts had been taken in certain critical accounts during the year.  This turned out to be totally unsatisfactory in satisfying a proper audit and preparing for a set of filings with the SEC.

Further, the documentation supporting the entries on the company’s books was very thin and in certain cases non-existent, which then required exhaustive research of the issues and relevant accounting rules. In many instances, an entire redo of the calculations and a determination of the proper entries had to be made.  Besides the significant investment of my time and energy to correct the deficiencies, it cost the company dearly to comply with the auditing standards of the new accounting firm.

My takeaway from this experience is pretty simple.  Do it right the first time around!  Don’t shortcut.  Make sure you and your accountants understand the accounting rules.  If there is ambiguity, then find the right expertise to provide the necessary advice and support.  And finally, Document!  Document!  Document!   By following these simple rules, you should feel confident that your company can present its accounts properly and handle any questions or due diligence that might be undertaken in the future.

Is Your Company Getting Ready for an Exit?

By Allan Tepper, Co-Founder and Managing Director

Since the Great Recession, 2014 may be the best year yet for an exit. This is true for sales of companies as well as IPOs. For private equity transactions, average hold periods are at an all-time high of nearly six years. These companies must be sold at some point. See BB&T Capital Markets video for macro developments over the past decade here.

For IPOs, 2013 proved to be one of the best years for the IPO market since the tech boom of the early 2000s, and PWC reports that 2013 has been the most active IPO environment since 2007. See PWC’s article, “Being Prepared in a Hot IPO Market” for references and additional information here.

In preparing for your exit, we suggest the gathering of both historical and projected numbers. Historical data should include all your key numbers and should present a clear picture of your business. Your forecast data should be driven by the key drivers of your business, and all forecast numbers should be supported by sound assumptions.

Unfortunately, some of the information required in producing historical and forecasted numbers may not be available in your accounting system. We recommend that companies would be wise to develop processes to capture those “non-accounting system numbers” on an ongoing and consistent basis.