When do you need an Independent Business Review?

independent business review IBR

At Sandra Beswick & Associates, we’ve been handling a growing number of independent business reviews (IBRs) over the past months – certainly a strong indicator of increasing financial distress in the business sector.

Within the  financial services sector – from banks, investors and equity investment companies to insurance companies and the legal sector – the economic downturn has resulted in a considerable need for more scrutiny of loan requests, to minimise risk for the lender. While forecasts for growth in the economy are positive, lenders remain concerned about clients who are having difficulty servicing  their debt.

In this scenario the IBR can be a necessary tool for assessing the risk of an investment, not only for lenders, but also for sole traders or partnerships, as well as limited companies, especially where there are significant cash flow or creditor issues.

IBRs are one of the many cogs in the wheel of economic stability and growth. Our view, as practitioners in this field, is that it is in everyone’s interests to take a fair and ethical approach to these investigations, ensuring that the exercise is not unnecessarily painful or expensive, and that the creditors are given an unbiased assessment of the available options.

Furthermore, an unbiased IBR can help to rebuild trust between a business and its stakeholders. With clarity on strategic and financing options all parties can move ahead with confidence or mutually agree on an insolvency solution.

Below we answer some of the questions we are frequently asked about IBR services:

What is an Independent Business Review?

An independent business review of an entity is an investigation into its financial position to evaluate its solvency and liquidity.  The review includes an analysis of the operational processes and systems, management practices, governance procedures and controls employed during the operations of the business. IBRs are very similar to due diligence processes usually undertaken when considering an investment into a business. The main reasons for IBRs are:

  • Identify any areas of concern for stakeholders including management, creditors, funders and shareholders;
  • Gain information to determine the viability of the business and the type of strategies to be implemented, for example turnaround;
  • Verify that all transactions comply with good corporate governance and controls are in place and maintained;
  • Depict a current and accurate description of the current position of the business.

This is a pertinent tool for management to address the ever growing challenges of the modern business environment through identifying any areas of issue that may need to be tackled early on.

Three areas must be investigated in a review. These are:

  1. Financial performance
  2. Legal
  3. Commercial and operating models.

Although many may believe that these three categories are all separate elements and should be treated as such, we believe that the best outcome is achieved when all three categories are used all together as an integrated unit.  As all departments of the business are interlinked, it is often best to view each division independently and then holistically. It is also important to ensure that external factors are considered when doing the business review – such as industry trends and the macro and micro economy.

IBRs are conducted by independent parties to ensure complete objectivity of the report.

Who should get an Independent Business Review Done?

  • Stakeholders with an interest in a business wishing to gain better understanding of all its areas;
  • Creditors and funders concerned about arrears and non-payments of loans and credit accounts;
  • Funders looking to provide additional funding particularly where they may be shareholders and are already exposed to the entity.

How long does an Independent Business Review take?

This depends on the size of the company under scope. The timeframe can range from 2 weeks to 4 weeks, assuming that all required information is provided willingly and timeously from management.

How is an Independent Business Review Conducted?

A scope of the work is agreed between the parties prior to the commencement of the IBR. A checklist of all the required information will be sent to management of the business. Once all the information is prepared, the documents will be thoroughly reviewed. In addition, interviews and site visits will be conducted where it is felt necessary. Further investigation will be conducted into external sources of the business, such as market research, industry experts, trade organisations and suppliers. Any areas of concern will be identified and reported back.

Some of the required documentation that can be expected:

  1. Financial Information

    • Annual & quarterly audited financial statements for the past three years
    • Current management accounts
    • Financial projections
    • Capital structure of the business
  2. Product Information

    • Product descriptions (market share and cost structure)
    • Product applications
    • Speed & nature of changes
  1. Customer Information

    • List of top 10 customers
    • List of any strategic relationships
    • List of top 10 suppliers
    • List of revenue generated by top 10 customers
  2. Competition

    • List of direct competitors
    • Brief description of current competitive advantage and market position
  3. Marketing, Sales and Distribution

    • Brief description of strategies
    • Brief description of marketing plans
    • Sales force productivities
  4. Research and Development

    • List of any new products
    • Brief description of R&D programme
  5. Management and Personnel

    • Interviews with management
    • Review of all employment contracts
    • Organizational chart
    • Personnel turnover
    • Incentives and remuneration packages
  6. Legal

    • Description of any pending legal actions
    • List of any patents, copyrights or trademarks

Sandra Beswick & Associates offers expert IBR services. Please get in touch with Sandra if you’d like to find out more.