If your business is in difficulty you may find your bankers suggesting the use of an Independent Business Review, IBR in the jargon. This article covers what to expect from these independent financial reviews of your business and how best to deal with them.
What is an Independent Business Review?
Independent Business Reviews or IBRs have been around for many years although when I started out twenty odd years ago we called them investigating accountant’s reports. The theory behind them is that where a business is in difficulty it may benefit from an experienced third party reviewing its affairs with a view to providing an independent and objective assessment of the position and the business’s options. ZenBusiness website builder review
Who Commissions an Independent Business Review?
In reality, IBRs are almost always undertaken at the insistence of a business’s bankers for one or more reasons which are discussed below.
HM Revenue & Customs has now also introduced the concept of IBRs (sometimes referred to in this context as an Independent Financial Review) in all cases where a time to pay request is made for VAT or PAYE/NI arrears of over a million pounds. They also have the power to request this in relation to smaller sums and insolvency practitioners are anticipating that they will begin to do so in cases where they have concerns.
Who Pays for the Independent Business Review?
The business does, normally out of its overdraft facility (which you may of course have Personally Guaranteed?). And they can be pricey, HMR&C for example has been quoted as saying that an IBR may cost an average of £42,500 and up to £75,000.
Despite the fact that you foot the bill, remember that the reviewer will normally be acting to advise the funder, to whom they will owe their duty of care, not you. While the reviewer will normally ask you to review the report for accuracy before it is submitted and discuss it with you, do not expect full disclosure. There may well be parts of the report such as the security estimates, recommendations and conclusions which will not be shown to you and the reviewer will normally discuss their findings with the funder in your absence.
Who Carries Out an IBR and what do they look at?
While staff from a number of disciplines may be involved, IBRs are usually carried out under the auspices of the insolvency (aka Business Recovery or some such euphemism) practices of an accountancy firm and almost without exception the partner and key team members involved will be insolvency specialists.
The banks, and now HMR&C, have adopted a panel approach where they use a limited number of firms to carry out this work, partly for quality control reasons and partly to help the banks try and manage costs.
Insolvency Practitioners (IPs) often complain that despite the fees involved, there is little profit in conducting IBRs. They are regarded by some as ‘loss leaders’, work that is done as part of having an overall relationship with a funder as a quid pro quo, or at least a route in, for picking up insolvency process work such as Administrations.
Aware of this potential agenda, or at least the perception of it, RBS has a rule that the firm conducting an IBR cannot then take an insolvency appointment in the same case. Fans of this approach say it removes an obvious potential conflict of interest for the IBR firm. Opponents say it is unnecessary as any firm which got a reputation for using IBRs simply as a way to generate more appointments would soon lose the trust of the bankers and the business which flows from it. They also suggest that this approach leads to increased costs in cases which do end in an insolvency as the second firm involved has to get up to speed.
The core of investigating accountants’ reports used to be financial, looking at both historic performance to see why the business was in this situation, where it, and crucially its funder from a security position, currently stood and how these were reflected in the business’s forecasts.
While these are still important, Independent Business Reviews, as the name suggests, nowadays usually take a wider view of the business’s health and prospects and are expected to comment on its management and strategy as well as its numbers.
Why is an IBR Used?
Whilst at worst an IBR could be sought to provide independent support or justification for a decision which in reality has already been made, or even as a tool through which to conduct what amounts to pre insolvency planning, in practice there are three main reasons why a funder will commission an IBR:
1 Information – traditionally many were undertaken simply to help the funder find out what was going on in the business, particularly in the absence of up to date financial information. With computerised accounting systems it is generally easier for banks to obtain some historical information so the purely financial aspects of simply establishing where the business stands tend to be less important these days in most cases.
Even so, there is can still be a tendency for some reports to be produced which are highly financial in orientation and better used as doorstops than as management documents.
2 Standard Procedure – where IBRs have been part of the normal approach to deciding how to deal with a problem they can become ingrained in a bank’s culture as part of the normal process. This can lead to a tendency to ask for one as a matter of course or to simply have it on file although to be fair most experienced business support managers are more selective in their use of this tool these days.