Analysing the financial position of an individual or a person is not a straightforward thing to do, but having spent a number of years working within credit underwriting, I have dissected countless sets of financial accounts.
Often the information that is available, even if you subscribe to credit information services, it can be fairly limited. In addition to financial accounts (which you can get for free from Companies House) a credit report may give you payment performance data, and details of other financial issues e.g. court judgements.
Warning
This series of posts about analysing financial positions are for information only, you should not rely on my approach for the process of granting any form of credit.
PROTECTION AGAINST BAD DEBTS
Analysing Someone's Financial Position For Free
I thought it might be helpful to outline the process that I go through when trying to understand the financial position of a party, without paying for credit information. You can do this for people that you know, or people in the public eye e.g. celebrities. I have recently had a look at several well known public figures that purport to have a lot more wealth than the available, free online credit information, seems to suggest.
With a celebrity, the first step may be trying to determine the name of the business that they use to receive income. For example, some of this type of information may be gleaned from looking at their websites, or other posts about them online. You could search for their real name online, as many use a stage name.
Google Search
The first thing I do isa simple search inGoogle.co.uk, using the individuals name (and/or company names). Normally I use inverted commas around the name, in order to get a more accurate result. This tells Google to return only that specific phrase, and no variations on it. This can yeild news items about the party, perhaps a website, LinkedIn profile etc. You can drill down into each, to get as much publically available information as possible.
The other day, I was told about an individual that had left behind a failing company, with a number of disgruntled employees, a quick Google search revlealed local news paper items explaining the situation, what had led to the current position, and the insolvency process that their company was now undergoing.
Looking At Someone's Business Interests
If the person has business interests, these may require that financial accounts are filed at Companies House, so there may be a bit more information to go on. This is not the case though if they trade as a sole trader or partnership.
I normally go to beta.companies house.co.uk, as their free website allows you free access unlimited filed information about companies, and the individuals involved with them.
Searching against an individual's name, you should be able to find a list of the directorships, or connections that they have to different companies.
The first thing to note is that if they trade as a sole trader or as a partnership, accounts will not necessarily be available via Companies House. However, if they use Limited Companies, PLCs or other forms of limited liability entities, there should be accounts available.
When it comes to looking at a set of accounts, the first thing that I would look at is the general information as to when the company was set up, which gives an idea as to how established it is. If it is a newly formed company, the chances are that accounts will not yet be filed. Therefore, the amount of information available is going to be extremely narrow.
If there are financial accounts available, there are various things that I look for, when reading through them. I start by looking at the date of the accounts, to ensure that they are relatively recent. Bear in mind that currently, companies have up to 9 months from the financial year end, to file their financial accounts - so they are always historic and outdated by their very nature.
Also, companies with turnover of less than £6.5M pa, and a balance sheet of less than £3.26M have no requirement for their accounts to be audited (verified by Accountants), hence they could be unrealiable.
Profit And Loss Account And The Balance Sheet
Then I analyse the profit and loss account, and I dissect and understand the balance sheet. See those two related posts for details of what I look for.
The above is not intended to be a comprehensive guide to analysing financial accounts, and I am not an accountant, but it includes some pointers based on the approach that I tend to take. If you need help understanding financial accounts, you should seek support from a qualified accountant.
If you are looking for protection against bad debts, caused by customers not paying you, please speak to Sean on: 03330 113622.
Recommended Accountants: Advanta Chartered Accountants.
Further Information: How Companies Can Look Good On Paper And Still Go Bust.
