When is a Going Concern Prognosis required?
A Going Concern Prognosis is particularly relevant in situations where a company shows signs of financial distress or is at risk of insolvency. This is based on the Austrian Insolvency Code, the case law of the Austrian Supreme Court, and the related two-stage over-indebtedness test. As a result, a positive Going Concern Prognosis means that there is no obligation to file for insolvency, even if the company is technically over-indebted based on its balance sheet.
Unlike the less formal Independent Business Review (IBR), a Going Concern Prognosis must meet clearly defined formal and substantive requirements. The Austrian Chamber of Tax Advisers and Public Accountants and the Austrian Economic Chamber have jointly published a statement setting out the minimum requirements for a Going Concern Prognosis.
No piecemeal approach! A comprehensive assessment of the situation and a prioritized action plan must be put on the table and communicated quickly.
What does a Going Concern Prognosis contain?
A Going Concern Prognosis assesses whether the company is likely to remain solvent in the short term and viable in the long term. To arrive at this assessment, it includes an analysis of the company’s current financial position, including its liquidity, financial obligations and operational performance, as well as a forecast of its future financial development and performance.
A Going Concern Prognosis covers various aspects of a company’s situation, including:
- Market and competitive analysis: An assessment of the overall economic environment and the competitiveness of the business model.
- Root causes of the crisis: An analysis of the company’s current situation and its historical earnings, financial and asset position in order to identify the underlying causes of the crisis and develop targeted restructuring measures.
- Restructuring measures: A description of the target state of the restructured company, together with an explanation of the measures required to achieve it, their implementation and a quantification of their effects.
- Financial projections: Based on the current situation and the planned measures, a short-term liquidity plan and a long-term integrated financial plan are developed. This comprises a primary forecast (generally covering the current or following financial year) and a subsequent secondary forecast (generally covering a further two to three years).
What purposes does a Going Concern Prognosis serve beyond legal requirements?
A Going Concern Prognosis enables stakeholders to better understand a company’s financial situation and assess whether, and to what extent, it will be able to meet its ongoing obligations. It can therefore also play a key role in stakeholder communication. The results of the Going Concern Prognosis can be used to improve communication with various stakeholders, including banks, investors, suppliers and employees, and to strengthen confidence in the company.
In situations where a company’s position changes significantly or during periods of crisis, strengthening the confidence of all stakeholders — and particularly providers of capital — is a key component of successfully overcoming the crisis. It is essential to create transparency around the company’s situation, develop a clear plan and communicate it effectively.
Do you need a Going Concern Prognosis, an IDW S6 restructuring report, or an IBR?
Feel free to contact us via our contact form or email us at office@mf.ag.
Who prepares and signs the Going Concern Prognosis?
The Going Concern Prognosis must be prepared and signed by the company’s management. Given the relatively high level of effort involved and to ensure objectivity, it has proven effective to involve advisory firms such as VALTUS Management Factory in its preparation. In recent years, financing partners have increasingly requested an independent assessment from the advisory firm in addition to the Going Concern Prognosis prepared and signed by management.
Are there other instruments with a similar purpose and benefit?
In addition to the Going Concern Prognosis, the Independent Business Review (IBR) and the German equivalent of the Going Concern Prognosis, the IDW S6 Restructuring Report, have become established instruments in the market.
Restructuring without knowledge of the balance sheet is like driving without a license.
What is an Independent Business Review (IBR)?
An Independent Business Review (IBR) is a detailed assessment of a company’s financial and operational situation conducted by an independent third party. It provides stakeholders such as investors, lenders and management with an objective assessment of the company. Unlike a Going Concern Prognosis, an IBR is less standardized and can be tailored in terms of scope and focus to the specific circumstances and requirements of the company.
An IBR provides investors, lenders and other stakeholders with a comprehensive assessment of the company’s financial and operational performance, creating the transparency needed to strengthen confidence in the business. By providing in-depth analyses and assessments, an IBR enables stakeholders to make well-informed decisions — ranging from strategic and financial decisions to specific operational measures.
No-nonsense strategy with a focus on hard facts.
What is an IDW S6 Restructuring Report?
The IDW S6 Restructuring Report is the established German standard for restructuring concepts. If German financial institutions are among a company’s lenders, an IDW S6 Restructuring Report is often requested in restructuring situations, either instead of or in addition to an IBR or a Going Concern Prognosis.
The report is based on a standard developed by the German Institute of Public Auditors (Institut der Wirtschaftsprüfer, IDW) and is broadly comparable in content to the Austrian Going Concern Prognosis. We are also happy to support you in the preparation of a restructuring report in accordance with IDW S6.
For a successful restructuring, it is essential to quickly assemble a small, dedicated turnaround team: motivated representatives from key areas of the company with whom we can develop and implement measures.
Here are some of our references in the field of Independent Business Review. Click on the logo to open and read the reference!
How can we help?
A sudden vacancy? Lack of leadership? A need for a turnaround? Or a need to achieve growth and results?
Our Interim Managers have at least 15 years of experience in leadership roles and are specialized in overcoming challenges similar to yours. They step in and start delivering results from day one with great leadership and drive – exactly when you need it.
For more than 20 years, we have been helping companies in Austria and the DACH region to identify the best Executive Interim Managers and experts available.
Let us know how we can help!