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Take It from This CFO: How to Cut Your Corporate Filing Costs

Bennet P. Tchaikovsky is the chief financial officer of VLOV Inc.

Way back when, in 1992, as a Coopers & Lybrand staff accountant, I worked long into the night on an S-3 for a client. Pages were faxed to us from “the printer” and when received, the senior partners and staff would have to tick and tie numbers to the workpapers.

We weren’t the only ones working at 2 a.m. The “printer’s office” that I only heard about, but never saw, was my post-college dream that others were living: endless food, pool tables, and a cooler full of beverages for entertaining the managers, partners, attorneys, and corporate staff who were also awake, waiting to sign off on the document before filing with  the Securities and Exchange Commission.

Today, filings are a much different story: Documents are “Edgarized” and have to be placed into a format that we’re still unsure if anyone is actually using (XBRL). Now, everything can be done remotely. In some ways, it’s easier.

The difficulty comes in knowing whether you are getting your money’s worth with your Edgar and XBRL providers.  Some offer the service “for free,” some have long, unrealistic lead times, and others don’t deliver on promised turnaround times.

The bottom line is that your Edgarization costs can be anywhere from  $4,000 to over $100,000 for a full year.  It’s a line item that with a little bit of effort and research can be successfully managed down. Making a switch can cut your filing costs by as much as 50 percent. Over the past 15 years, I have worked with a variety of Edgarization providers and recommend the following rules to follow when making a change:

Rule 1: Consider the provider’s history. Tomorrow, I could license Edgarization software, find a way to file documents with the SEC, and open up shop. While this is completely unrealistic, it illustrates how far technology has come. Setting up an Edgarization process is much easier than it used to be. Therefore, you need to ask your potential provider, “How many years of experience do your operators have in creating Edgarized or XBRL documents?”

Make sure to check references by calling other CFOs using that processor. Ask the CFO if the processor has ever misfiled a document or taken multiple times to pick up a document’s changes. While you will save money by switching to a different provider, your reputation is on the line for making sure you pick the right vendor.

Rule 2: Pay attention to pricing. Nothing is really free. So-called “free” providers will get you to sign up for ancillary services such as investor relations.

If you have an IPO, you may want to be with a top-tier provider for that one particular filing and may have no choice (the investment bank may dictate who to use). However, for regular filings, there is no reason to have a top-tier provider unless your market cap dictates it.

Another issue to keep in mind is your internal costs. As a CFO, I detest receiving invoices every time I make a filing and having to check each one for accuracy. By paying for the full year, you’ll avoid receiving up to 20 invoices. Generally, you can get an “all-in” price for everything except for registration statements or situations such as an 8-K exceeding 100 pages.

Rule 3: Question how much the provider outsources. I once was three days away from the filing deadline and my document still had changes to process. I called Company X, which was providing me with both Edgarization and XBRL. It stated that the XBRL work would not be done on time. Desperate, I called a friend who referred me to another XBRL provider, Company Y, that served as the back end for other filers. It said filing the document would be “no problem.” Deciding to give Company X one more chance, I spoke with someone I had worked with for years who stated again that my deadline could not be met. I then sent an e-mail terminating the XBRL relationship with Company X. Within five minutes, I received a call from the sales representative of Company X stating that if I had “called they could have made it happen.” I told him that if their employees were not on the same page, I did not want to have anything to do with Company X.

Later, I found out that Company X had signed a contract with a third party to handle its XBRL work. To get the best rates with its third-party provider, Company X required a seven-day lead time from its customers, with “pencils down.” This means the document had to be completely final prior to submitting it to XBRL. Unless you have unlimited resources, “pencils down” is unrealistic and a sign that something is not right with your provider.

Here’s the lesson from my long-winded illustration: Make sure that the provider insources the XBRL work, or go to an XBRL provider to do the work separately. I’m OK with a provider that licenses software and has its processors do the XBRL work, but I am not OK with complete outsourcing. I have saved 60% in costs by going directly to an XBRL provider.

Rule 4: Review service capabilities. When switching Edgarization providers, make sure that your new one has what you need: 24/7 service, printing contacts, typesetting, and so on.

I prefer to receive 24/7 communication from the EDGAR/XBRL provider as to the status of my document. Once I used a provider that did good work and had a fully automated system, but were not open 24/7. Not receiving that immediate email from a live operator made me nervous as I didn’t know whether the company had begun working on my project or had received my changes.

If you are using two separate providers for Edgar/XBRL, be sure to get that first draft of the document in html early so that the XBRL provider can begin its processes. If an XBRL provider tells you that they changes can’t be made after you submit your draft, don’t believe it. Send the XBRL provider the changes as you make them to your EDGAR provider.

Rule 5: Have thick skin. If you leave your current provider, your contacts there will be upset. The bigger the provider, the more upset they’ll be. They will more than likely degrade your new provider, telling you that your documents will not be filed properly. They will say anything to keep your business.

You may also get a call from you counsel or another third party involved in your filings, such as your investor relations firm, asking you to stay with the current provider. Ask them why they care and if they have other clients with your old provider or are receiving compensation in the form of a referral fee. You may receive an interesting answer. You can also tell them that you are willing to stay with your current provider if they’ll pay the price difference. That should end the conversation quickly.

Rule 6: Think like Captain Kirk. A very important storyline of Star Trek II: The Wrath of Khan, is learning how Captain Kirk passed an impossible test (Kobayashi Maru – thank you Wikipedia!) by manipulating a no-win computer simulation.

I’m not Kirk, but I channeled him when I wanted to switch from my current Edgar provider (Company Z) to another provider (Company AA). Company Z told me “fine” but then held my Edgar access codes, including our password, hostage. Even though my company had paid over $10,000 in the prior six months, Company Z wouldn’t budge until we paid off our balance, worth about $1,000.

With the help of Company AA, I completed an “Update Passphrase Confirmation” with the SEC, which is a painful process involving notarizations and emails back and forth with the new provider. But I really enjoyed letting Company Z know how I felt about its scare tactics.

Remember, as a CFO, you need to be watching your costs. Running a publicly traded company is not cheap, so you need to evaluate your costs and providers constantly to make sure that you’re getting the best possible value.

Bennet P. Tchaikovsky is the chief financial officer of VLOV Inc. (OTCBB: VLOV). He has served as the designated financial expert and as CFO for numerous publicly traded companies and has been integral in the uplisting of several companies to the Nasdaq. Tchaikovsky is a licensed CPA and attorney in the state of California and a graduate of Southwestern University School of Law and UC Santa Barbara. He also serves on the board of directors of the Arthritis National Research Foundation and the audit committee of the Long Beach Day Nursery. He can be reached at bennetatwwofficers [dot] com or 310-622-4515.

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