What Does IBR Mean? Independent Business Review – Explained
If you’re trying to find out ‘what does IBR mean’ or ‘what does IBR stand for’ in a business or banking context, that’s understandable as there are some conflicting answers online.
IBR stands for Independent Business Review. IBRs are comprehensive assessments of a company’s financial health and operational performance, typically conducted at the request of a bank or other lending institution.
Banks often initiate IBRs when they have concerns about the borrowing company’s financial stability or solvency.
The primary aim of an IBR is to provide lenders with an unbiased evaluation of a company’s:
- Current financial position
- Future trading prospects
- Overall business model and financial strategies
- Management capabilities and operational efficiency
Qualified accountants or insolvency practitioners usually carry out IBRs. Many banks maintain a panel of preferred firms for this purpose.
Banks may launch an IBR when companies breach the terms of their agreements, or they anticipate likely breaches in the near future.
Common reasons for reaching this position include:
- Ongoing cash flow problems
- Exceeding bank lending limits
- Failure to provide requested financial reports
- Late loan repayments
- Concern about insufficient loan security
The lender’s primary objectives for initiating an IBR are to gather detailed information about the company’s financial stability, assess the safety of their investment and work out the most appropriate course of action.
If your company is facing an IBR, we’ll explain what to expect in this guide:
IBR meaning: What an IBR involves
The investigating team may look at the following areas:
- Profit forecast
- Cash flow analysis
- Company assets and liabilities
- Operations
- Management
- Market positioning
- SWOT analysis
- Assessment of the group structure
- Borrowing habits
- Loan security
- How consistently the company collects monies owed
After completing the IBR, the reviewer produces a formal written report with recommendations. These recommendations can include:
- Halting the company’s line of credit
- Requesting additional security measures for future borrowing
- Demanding immediate repayment of outstanding debts
The report may also suggest further investigations into specific areas of concern or implementing restructuring measures to safeguard the company’s future.
Other possible recommendations include, but are not limited to:
- Obtaining personal guarantees from company directors
- Requesting directors to contribute capital to reduce loan amounts
- Requiring directors to provide new, detailed loan repayment plans
- Mandating regular financial reports from the company
- Proposing the use of asset-based finance, such as invoice discounting, to improve cash flow
These recommendations aim to address financial concerns and protect the lender’s interests while potentially offering a path forward for the company.
Potential options after an IBR
If the bank calls in its loan after an IBR, you may need to consider alternative financing options.
Invoice discounting can generate a faster cash inflow compared to waiting for customers’ settling of their unpaid invoices. You borrow based on your agreed sales agreements and pay a fee to the invoice discounting service provider
Invoice discounting provides short-term loans with the invoice values used as security. Invoice factoring is similar, but you hand over responsibility for collecting the debt to a provider.
However, alternative financing has its risks. For example, if your customer enters liquidation and never pays their invoice, you’ll still owe the debt and fees to your invoice discounting provider.
Beyond alternative financing
The report from the IBR may raise serious concerns which could lead to restructuring measures in order to safeguard the future of the company.
Restructuring measures might involve:
- Renegotiating existing debt terms
- Closing unprofitable divisions of the company
- Disposing of surplus assets
Other potential business recovery options include:
- Administration: Another way of getting some extra time to assess your business recovery options when in financial difficulty is by appointing company administrators. They review your business’ position to see if there is sufficient support to continue trading in the long-term.
- Company Voluntary Arrangement (CVA): Insolvency practitioners put together a formal repayment plan while the company continues to trade. This eases the pressure from creditors and can help the business avoid liquidation.
- Creditors’ Voluntary Liquidation (CVL): If the debts are unpayable and the cash flow is poor, a CVL might be the best choice for the business. Company shareholders vote to approve the CVL process and afterwards, the business stops trading and sells off its assets.
In short, what’s the difference between a CVL and CVA? They’re both voluntary, in that the company directors proactively appoint an insolvency practitioner, rather than a third party taking action against the business.
And in both procedures, the company directors’ duty is to the creditors of the company instead of the shareholders. They have some similarities but a CVA is much more likely to allow a struggling business to continue trading, if an agreement is possible.
Whether you need business recovery experts or just good financial advice, Hudson Weir is here to help, no matter if your business is facing an IBR or not. For more information, please don’t hesitate to contact us.
