Key Takeaways:
- Adopting strong controls early can ease the transition for IPOs and attract private equity buyers with higher financial reporting expectations.
- Rapidly growing private companies face increased risks of errors and fraud, making structured financial controls essential for sustainable growth.
- Enhanced internal controls improve your credibility with investors, banks, and industry peers, strengthening financial oversight and stakeholder trust.
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Often viewed as a public company concern, private organizations can benefit from implementing internal controls like Sarbanes-Oxley (SOX) Section 404 requirements. A strong control environment will enhance your accountability, reduce your fraud risk, improve financial processes, and strengthen your board engagement — all of which can be critical for your long-term success.
Private organizations are not always smaller, but they do often have limited resources in specialized areas like income tax accounting. If your tax functions operate outside the core accounting team — plus combined with the complexity of financial reporting — your private company may be an ideal candidate for enhanced internal controls. Proactively adopting public-company-level controls can provide significant benefits.
5 Reasons Your Private Company Should Strengthen Its Internal Controls
Here are some scenarios when it might makes sense to invest in public-company-level controls — and the value you stand to gain:
1. You’re Preparing for an Initial Public Offering (IPO)
If an IPO is part of your company’s future, setting up strong internal controls early can create a smoother transition. A phased approach to SOX compliance allows businesses to integrate controls into operations before they are required by regulators. Reports on IPO activity and first-time internal control over financial reporting (ICFR) assessments show that companies are three times more likely to disclose internal control weaknesses during their first assessment. A rushed transition to SOX compliance can put undue pressure on a newly public company.
2. You’re Wanting to Attract a Private Equity (PE) Investment
For companies considering a sale to a private equity firm, enhanced financial reporting controls can provide added credibility and confidence for potential buyers. Strong internal controls increase transparency and reduce financial risk, making your company a more attractive investment. Additionally, if the PE firm’s exit strategy includes an IPO, SOX-level controls will become necessary in the future.
3. You’re Interested in Managing Risk During Rapid Growth
If your company is experiencing rapid expansion — whether through organic growth or acquisitions — you’re more susceptible to financial misstatements and fraud. As business complexity increases, the capacity and skill set of internal accounting, finance, and tax teams may lag. Establishing standardized processes with preventive and detective controls can help reduce risk, allowing necessary financial oversight to keep pace with the growth you’re experiencing.
4. You’re Strengthening Your Credibility with Investors and Lenders
Beyond public shareholders, many private companies have stakeholders who rely on financial information, such as banks, investors, and strategic partners. Enhanced internal controls improve financial reporting accuracy, increasing trust and reducing perceived investment risk. This can lead to lower borrowing costs and stronger relationships with financial institutions.
5. You’re Interested in Aligning with Industry Best Practices
In certain industries, internal control expectations are shaped by public-company peers. Sectors such as utilities, healthcare, financial services, and technology—where data security and regulatory compliance are critically looking to industry leaders to set control expectations. Private companies operating in these industries can receive help from adopting the same high standards, strengthening their competitive position, and reducing risk exposure.
Future-Proofing Your Private Company with Stronger Controls
Private companies face increasing stakeholder scrutiny around accountability, risk management, and financial integrity. Those that proactively adopt stronger internal controls prove long-term strategic thinking, preparing for potential transitions such as an IPO, sale, or industry regulatory changes.
How MGO Can Help
MGO collaborates with private companies to develop and implement internal controls that improve financial oversight, reduce risk, and align with leading industry practices. Whether you’re preparing for SOX compliance, attracting investors, or strengthening your financial governance, MGO provides tailored solutions that support organizations in building scalable, transparent, and sustainable control environments.
With a broad background across industries, MGO helps private businesses navigate complex financial landscapes with structured processes, improved oversight, and strengthened financial transparency, positioning them for future opportunities. Contact us to learn more.