Getting in financial shape

Good financial management helps a company understand itself better, plan and grow, especially so when it is going for a public-listing.

Many growing businesses aim to be public listed. While "going public" offers several advantages, such as raising funds for expansion instead of relying on bank loans, the journey takes up a lot of time and resources. A good financial management system can provide a good start to supporting the entire process.

Before becoming a public-listed company, senior management needs to identify their reasons and objectives. These are some areas that must be in place or given due consideration before a listing:

  • Financial and management control systems
  • Compliance with relevant accounting standards
  • Corporate restructuring
  • Business expansion plan for the next two years
  • Interested party transactions and conflict of interest
  • Preparation of proforma accounts to be reviewed by auditors
  • Preparation of prospectus
  • Composition of the Board of Directors

An IPO aspirant should look into adopting proper financial management practices and a financial management system before it embarks on the road to IPO. A well-planned and well-implemented financial management system enables the company to generate accurate and timely statistics and reports for analysis and decision-making.

"A proper financial management system gives deeper insight into a company's financial position."

Many companies, however, purchase a "financial management system" only to use it as an "accounting application" for recording accounting transactions and routine statutory reporting. However, limited information about the business can be drawn from an accounting application, while a proper financial management system gives deeper insight into a company’s financial position, including its main revenue sources, sales by regions, strengths and weaknesses, and, most importantly, the necessary information to plan for growth.

Once a company decides to go for a listing, the preparatory work commences. This stage in general takes about 9 - 14 months. A committee will need to be formed and more detailed statistics need to be generated. The company must, among other things, prepare financial statements of the past financial years in accordance with relevant accounting standards, align financial statements of subsidiaries, and prepare business expansion plans for the next two years. This is an important stage in the IPO process. Tight deadlines mean that huge amounts of manpower and other resources are required to meet the milestones set and prevent unnecessary delays to the IPO process.

A well-implemented financial management system provides the committee with the necessary information in a timely manner, while compliance with relevant accounting standards ensures the process is easily managed.

An important task in this stage is the computation of the share price, which is based on a number of factors, such as the historical earnings of the company, future earnings and business plans for the next few years. Again, with a good financial management system in place, such information can be more easily and accurately extracted.

A successful IPO is only the beginning for greater corporate governance and transparency. A listed company has to comply with the financial reporting requirements and various other obligations as stipulated by the Singapore Exchange, for example. Announcement of the quarterly, half yearly and yearly financial results must be done within stipulated time frames. With many deadlines, it is important to ensure the availability, reliability and accuracy of the company’s financial management system. A proper IT infrastructure and team (or vendors) is, therefore, important in supporting these applications.

After its IPO, the company will have increased pressure for short-term performance. Again, having a good financial management system in place will allow the management of the company to focus on growing its core business and react faster. It will also enable the company to improve and refine its control system where necessary to meet continuing compliance requirement. It is, therefore, important for a company to select a financial management system with a proven track record and is scaleable.

As the business grows, a proper financial management system is important to continue providing the company with timely and accurate information and statistics for decision-making. The financial management system is more than routine statutory reporting, it is a system that helps the business to understand itself better, plan and grow, especially so when it is going for a listing.

Eileen Tan is the manager for business development at Stone Forest IT, a provider of integrated IT solutions based in Singapore.