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The significant financial uncertainty created by the COVID-19 crisis has resulted in many businesses being reliant on additional contributions from key stakeholders to stay afloat. This threatens  to erode confidence and causes a lack of trust. In such situations, an Independent Business Review (IBR) is instrumental in identifying financial, strategic and operational issues that are critical to stakeholders, shareholders and funders.

Sandra Beswick, Director at financial and strategic advisory company Fluence Capital, says in the face of the unprecedented changes to the business landscape, the only way to protect stakeholders and minimise their risk of exposure, is to react with speed. But, this can be incredibly challenging when a business is facing difficulties.  

Sandra says IBRs can be vital lifelines to distressed businesses, as they provide a roadmap from which concrete solutions and recommendations can be implemented.

“An IBR ‘stress tests’ business performance and financial affairs to provide a clear picture of the shortcomings, providing a robust platform from which risks and challenges can be identified and addressed.”

She says an unbiased IBR can also 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. 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 option.”

What is an Independent Business Review?

An independent business review of an entity is an investigation into its financial affairs  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, restructuring of the balance sheet and liabilities;
  • 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.

From a qualitative aspect, conducting confidential interviews with a wide range of employees in various roles within the organisation is particularly useful. They provide relevant information about the management issues within the organisation and are aware if the entity is in financial distress or not. In most instances their opinions are not taken seriously and are ignored to the peril of the business. 

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 and the  scope of the review. 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.

Fluence Capital’s team of specialists have the resources, skills and experience to carry out Independent Business Reviews on organisations potentially facing distress or are not compliant with their funding agreements. Each review is tailored to meet the specific requirements of the client. The earlier advice is sought, the more options available. Get in touch if you’d like to find out more. 

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