IPO in Your Future? Begin Your Contract Audit Now
Going public is a huge step. It means your company has secured the necessary backing and funding to step out on the main stage. So when you’re gearing up for an IPO, the scrutiny will come from every angle—financial, legal, compliance. Heck, even the press will get in on the act. With so many complex nuances involved, a contract audit is an essential component of your IPO prep. Why?
Contracts underpin more than just the financial health of your company. They tell the story of your business—good, bad, and neutral—so they need to be signed, sealed, and delivered (stored and accessed) in a way that withstands the intense pressure of an IPO. But how can you ensure your contracts are up to snuff? By putting a contract management plan in place that begins with a contract compliance audit, or contract audit.
A contract audit helps put your ducks in a row
Contracts connect your company with all the other companies you work with during the course of business. Just one improperly-executed contract or billing error could potentially derail your IPO. A contract audit provides a comprehensive, internal assessment of your contracts to make sure all the terms are in place and you’re being paid properly, including:
- Ensuring all necessary parties (internal and external) follow the proper provisions and regulations.
- Verifying and evaluating current policies, systems, and controls for accuracy.
- Analyzing and verifying logs, accounts, and transactions.
The Big Picture: How a contract audit fits with your IPO
- Forecasting accuracy: As a public company, you’ll need to deliver results. But before you IPO, you must prove you can deliver results quarters in advance. An audit of your contracts will prove what your financial bottom line is, proving to investors what you owe and what you’re owed. By sharpening the insights gained from your supplier, customer, and employment contracts, you can forecast revenue with confidence.
- Compliance transparency: Rules, regulations, compliance, oh my. It’s important to show that all internal and external stakeholders comply with the laws and regulations governing your business. This ranges from compliance with the Sarbanes-Oxley (SOX) Act to the Foreign Corrupt Practices Act (FCPA).
- Earnings potential: When you’re talking about the kind of investment and capital involved with going public, you need to show that your company has a clear path for delivering free cash flow. A contract audit will reveal any potential bottlenecks or slowdowns that need to be cleared to unleash your company’s true financial potential.
Your contract auditing fundamentals
Well, you already have the first step buttoned up: Define your objectives. Since your end game is going public, that’s your goal in a nutshell. Here are some additional guidelines for launching your first contract audit:
- Define your objective. With a clear objective in mind—in this case, going public—you’ll establish a strong foundation from the outset. Check this step off as done.
- Consider the timing. A typical contract audit takes approximately three to six months to complete, so factor this process into your IPO plans.
- Determine the scope. Are you looking at every contract or only certain types of contracts? For IPO purposes, you’ll probably opt for an exhaustive contract audit that can uncover any potential red flags—from late deliveries to non-compliance issues. Even the smallest discrepancy can cause serious financial or reputational damage if left unchecked.
- Create your audit team. Will it be composed of internal stakeholders? External? Or both? A neutral third party might be your best bet to conduct the type of complete, unbiased audit you want.
- Choose the right tool. A digital contracting solution will save you loads of time, arm you with insights, and set your company up for long-term compliance.
- Define roles. Assign tasks and roles so work isn’t duplicated or missed. Security during an audit is extremely important. You’ll be dealing with a lot of confidential information, so each team member needs the correct set of permissions—and nothing more.
Incorporate your findings
Your final audit report should reflect the contract audit’s initial purpose and include clear, accurate data and conclusions. It should also include recommendations for addressing any non-compliance issues. Use this report as a basis for any course corrections you need to make as your company moves toward its IPO.
The impact of an audit on your IPO
Improves cash flow
Your contract audit includes a review of invoices and bills to ensure payment is correct and timely. Verifying proper payment helps improve cash flow, which is key to showing your company’s earnings potential.
Builds better relationships
When you include your business partners in the contract auditing process, you can work together to fix even the smallest discrepancies before they escalate. This collaboration helps lead to long-term relationships, and good relationships are a hallmark of a healthy business.
Keeps business on track
The findings of a contract audit can help shed light on any internal blind spots or compliance issues. By identifying these issues sooner rather than later, you can fix any potential IPO sticking points.
The role of CLM software
Managing contract compliance is a complex endeavor that extends beyond the initial audit. That’s why many companies rely on contract lifecycle management (CLM) software to streamline the process. CLM software connects the people, processes, and data involved to ensure communication at every contracting stage: contract generation, negotiation, approval, signature, and storage.
By digitizing the contracting process and connecting everyone involved, you can improve speed, efficiency, and collaboration. You can easily upload your existing contracts into a single repository, where bulk searches take a matter of seconds. Get AI-driven insights, or export your data to enhance your IPO deliverables. Increasing contracting speed is key to accelerating growth and unleashing your company’s public potential.
What to look for in a CLM platform
Not all CLM software is created equal. Here’s what you should look for when selecting a digital contracting partner:
- Features built to handle end-to-end management. Ask to demo the software’s reporting, workflow, editing, and repository capabilities.
- Built-in business protections. Look for documented approval and signature policies that provide an audit trail for tracking and deadline purposes.
- Access to real-time insights and data. When you’re armed with current contract info, you can forecast more accurately—and sooner.
- Overall governance and compliance plan. Make sure the CLM software meets your company’s security controls and integrates with key governance and compliance systems. This will allow you to produce reports quickly and easily for internal and external auditors.
- Powerful, easy-to-use platform. Invest in software that’s agile and responsive with a no-code setup. When everyone can access the contracts easily, it reduces turnaround time and streamlines the workflow.
- Key integrations. You’ll get the best performance from a system that integrates with your other essential tools, like Salesforce and OneDrive.
Executing all the moving parts of an IPO is a complex, time-consuming endeavor. Digitizing the contract management process takes one thing off your plate so you can focus on your SEC filings, Road Show, and all the other IPO deliverables. Ironclad provides full-service CLM software designed for your unique needs as you take your company from private to public.
- The Big Picture: How a contract audit fits with your IPO
- Your contract auditing fundamentals
- The impact of an audit on your IPO
- The role of CLM software
- What to look for in a CLM platform
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Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.