An Independent Business Review (“IBR”) is a review of a company’s financial position that is carried out by an independent third-party with no connection to the business. Our Business Recovery and Restructuring team answer some frequently asked questions about IBRs and explain what happens once they have been completed.
IBR’s are useful in a number of scenarios, for example:
- When a lender or bank has concerns that the financial state of a company could affect the repayment of a loan.
- When a lender or bank is conducting their due diligence, as to whether they are providing funding to a company.
- Where the Directors of a company have concerns in relation to the financial position of their company, but there is an ability to recover some or all of the business and assets. An IBR allows the Directors to assess the options available to them.
What does an Independent Business Review consider?
An IBR provides an unbiased view on the company’s finances and business structure, by utilising facts and financial information provided by the company as well as external resources. The review will highlight areas of concern within the business stakeholders, shareholders and directors and is tailored to the individual company.
Some specific areas that are put under review include:
- An analysis of a company’s cash flow
- Profit forecast
- The company’s operations
- The company’s existing and future contracts/order book
- Market position
- Company’s assets and liabilities
- Sector specific challenges
- Geopolitical pressures
Who carries out an Independent Business Review and why?
In the circumstances where an IBR is required, as companies are usually under significant financial pressure, they are typically carried out by Insolvency Practitioners (IP). As noted above, IBRs are designed to provide an unbiased view of the financial position of a company. The main focus of an IBR is for a lender to assess whether the business is able to repay money it has borrowed, or for an investor to understand a company’s ability to make a return on the investment. It also allows a Director to assess the financial position of the company, and what options they have available to them moving forward.
Once the investigation is complete, the IP will compile a report that will set out recommendations as to how the company should move forward.
Does a company director have to be involved in the process?
A company’s Director is integral when conducting an IBR, in both providing key financial information, and further context in relation to the circumstances that led to the company’s financial position to decline, as well as provide details of any opportunities that the company has moving forward.
The involvement of a Director is therefore essential to assist the IP in conducting the IBR, and will help achieve the most accurate reflection of the financial position and options available.
What happens after an Independent Business Review?
Despite popular belief, IBR’s do not necessarily lead to a company’s formal insolvency. After the review has been completed, a written report is produced which will contain recommendations meaning the bank could stop a line of credit for a company or demand the money owed is repaid. However, PKF Smith Cooper have also been involved in IBR’s where the recommendation has been that the issues faced by the business are being mitigated and further funding or support should be provided by the lender or bank.
It can also be recommended that ongoing support is needed for the management team to focus on a particular area which has been recognised as being concerning and could lead to restructuring measures being introduced to ensure the future of the company.
Lenders will normally look for constructive ways to assist and formal insolvency is always a last resort decision.
Get in touch with our team
If you are worried about the future of your company, it is important to seek expert advice at early stage, as the earlier the issues are addressed, the more options are available to deal with the company’s financial position.
Get in touch with a member of our Business Recovery and Restructuring team to discuss any concerns you have about your business.
