“An obligatory external rating is typically done when financial markets are accessed (e.g. when bonds are issued) or when there is a concrete agreement among the firm’s creditors. This is primarily the case with big companies, less so with German small and medium-size firms. The latter must primarily deal with the rating by the financing banks.
Banks regularly do internal valuations of their borrowing commercial clients. This internal rating is a structured procedure, based mostly on quantitative sources (like annual accounts, recent monthly financial statements, and planning calculations). Some qualitative aspects, which are important for the assessment of a firm’s creditworthiness, like the appraisal of markets/competition, organizational efficiency or the management’s competence, often remain unconsidered. An external company valuation or an external rating can therefore be helpful; it permits the entrepreneur to present a complete picture of his company and to discuss or improve the assessment by the bank in a professional way.”
“Because of its business and financial relationships, e.g. with suppliers, investors or leasing/factoring financiers, a company will also be assessed from their point of view. Whether an external rating is to be done for these purposes is to be decided on the basis of a cost-benefit analysis. – Equity investors will do the valuation of a firm on the basis of their own due diligence and set the other conditions of their investment on the basis of the insights gained. An external rating plays no role or only a secondary role in this.”
“A lot! Especially owner-managed medium-size and family firms often fail to utilize the possibilities to “sell” their firm in a clear and convincing way. They present past financial data like annual accounts or monthly financial statements; but there is no coherent presentation of their business model and any correlating reliable business planning.
Here the companies are challenged to relinquish their often passive attitude and to deal actively with current and future investors, lenders or suppliers. The entrepreneur ought to be so well prepared that he is able at all times to “sell“ his company. The cost of preparing/revising the business plans or the organization of documents is well invested. – Such an “internal“ company rating creates transparency and permits a professional discussion on a par with stakeholders. The transparency so created reveals, as a rule, existing problem areas that can now be analysed and corrected in time. The expanded scope for action allows winning additional financing partners and reducing the frequently existing dependence on the house bank. Last, but not least: Should a company still decide on an external rating, the measures mentioned above will help to reduce the cost of the rating and to improve its findings.”