A solvency opinion is an independent review of one of the most barebones questions about a business. There are many scenarios where you need to know how far from or close to bankruptcy an operation might be. A business facing any of the following five situations might want to contact a solvency opinion firm.

Recapitalizing

Especially if a company is in a growth or rebuilding phase, it may need to acquire new capital to continue its operations. A solvency opinion will address the simple question of how much money the company will need. Likewise, the opinion can address concerns financing parties or shareholders may have about the state of a business that wants to recapitalize.

Mergers and Acquisitions

The union of two companies always opens questions about their financial conditions. An acquiring party needs to know how wise the decision even is. A solvency opinion firm can review the conditions of both operations so they'll have a clearer picture of how prudent or not M&A talks may be. This can also significantly shift the price range associated with acquisitions, allowing parties to talk more forthrightly about the associated risks and benefits.

Restructuring

Changing the structure of a company creates some challenging questions about solvency. Foremost, restructuring may shift the way a company even handles its accounting. If a change might alter the metrics for how close a firm might be to insolvency, then the stakeholders need to understand the implications.

There might also be questions if a company is spinning off a subsidiary. Generally, a subsidiary takes on at least some of the associated debt from the days of its operations as a subordinate entity. This will affect the balance sheets at both the old company and the new one, and that has implications for solvency, too.

Bankruptcy

A firm considering filing bankruptcy needs to have a clear picture of its financial condition. This can affect whether it might file for one form of bankruptcy or another. It also will affect whether a court is likely to even consider the petition. Similarly, a solvency opinion can help a firm decide how it might need to restructure its debts.

Capital Requirements

Particularly in the financial sector, many businesses have capital requirements based on internal, industry, or government standards. Banks, for example, need to maintain certain asset or money levels to avoid creating systemic risks. A solvency opinion can provide an independent perspective regarding how well a firm is meeting these capital requirements.

Contact a solvency opinion firm for more information. 

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