May 09, 2006
Avoiding SOX Costs Smaller Businesses
I came across the following article at CFO.com (404 Makes IPO: Mission Impossible) - Click here.
One of the gentlemen quoted outlines how his company decided not to go public to primarily avoid costs associated with Sarbanes-Oxley (particularly Section 404), but has now put the business in harm's way to help buyout an initial investor. I appreciate the frustration of Mr. Broderick with respect to the disproportionate cost burden that SOX places on smaller companies. Hopefully the SEC/PCAOB will come up with some sensible streamlining of 404 to maintain and enhance investor confidence in a more affordable manner. However, smaller company investors are not well served by avoiding the legislation. Avoidance may actually be "penny wise", but longer-term "pound foolish" as Mr. Broderick's business is now drained of cash, has increased debt, and in his own words has more limited growth prospects. Sounds like a recipe to stay small. The reality is that going public has always been a greater strain (pre and post Sarbanes-Oxley) on smaller businesses as there is a compliance cost "barrier-to-entry". If you take the public's money you are going to pay the price. In the example mentioned in the CFO.com article, it looks like a hefty price is being paid by not going public.
To both affordably strengthen and streamline your company's internal controls over financial reporting, and Sarbanes-Oxley compliance, please go to http://www.issuescentral.com/ to learn more about the Compliance Playbook(TM). If you are a Canadian-based company needing to comply with SOX, or MI 52-109, please go to http://www.compliancepartner.ca/ to learn more about Compliance Partner(TM).
One of the gentlemen quoted outlines how his company decided not to go public to primarily avoid costs associated with Sarbanes-Oxley (particularly Section 404), but has now put the business in harm's way to help buyout an initial investor. I appreciate the frustration of Mr. Broderick with respect to the disproportionate cost burden that SOX places on smaller companies. Hopefully the SEC/PCAOB will come up with some sensible streamlining of 404 to maintain and enhance investor confidence in a more affordable manner. However, smaller company investors are not well served by avoiding the legislation. Avoidance may actually be "penny wise", but longer-term "pound foolish" as Mr. Broderick's business is now drained of cash, has increased debt, and in his own words has more limited growth prospects. Sounds like a recipe to stay small. The reality is that going public has always been a greater strain (pre and post Sarbanes-Oxley) on smaller businesses as there is a compliance cost "barrier-to-entry". If you take the public's money you are going to pay the price. In the example mentioned in the CFO.com article, it looks like a hefty price is being paid by not going public.
To both affordably strengthen and streamline your company's internal controls over financial reporting, and Sarbanes-Oxley compliance, please go to http://www.issuescentral.com/ to learn more about the Compliance Playbook(TM). If you are a Canadian-based company needing to comply with SOX, or MI 52-109, please go to http://www.compliancepartner.ca/ to learn more about Compliance Partner(TM).
