Do You Vet Your Business Partners? Financial data that can do it in just a few clicks

Property development and the construction industry as a whole operate over long investment horizons and rely on numerous subcontractors – and this is precisely where a small error in assessing a business partner can prove costly. Filip Glasa, founder of FinStat, explains what the numbers can reveal about the financial health of a business partner and how the Czech construction industry is performing.

You have a strong presence in Slovakia. Did you also have ambitions to expand abroad? What surprised you most when entering other markets?

We decided to expand into Western Europe first, where we operate under the Hit Horizons brand and provide basic data coverage across the whole of Europe, and only then enter the Czech market. We originally expected a gap of two or three years, but it took much longer, and we did not launch the Czech version of FinStat until 2024 – ten years after Slovakia.

FinStat is a database of corporate financial indicators and has been operating in the Slovak market for twelve years. It is led by its founder and CEO, Filip Glasa. FinStat entered the Czech market in 2024, offering calculated financial indicators and its own FinStat score, which assesses the probability of a company becoming insolvent.

The biggest difference is our market presence. When you enter a market that late, the cards have already been dealt and you cannot expect to capture a large share, although that did not particularly surprise me. The second thing is that, as a foreign company, marketing, sales and PR are all more difficult. At home, people see you as an interesting local company; abroad, you may still be interesting, but you are “from somewhere else”. Otherwise, the Slovak and Czech markets are very similar.

What should an entrepreneur check about a business partner before signing a contract with them?

The starting point is credit scoring models, which use past insolvencies to estimate the probability of default. The best known is the Altman Z–score, which we refer to as Index 05, and we also have our own FinStat score. One of the most reliable indicators is the ratio between a company’s liabilities and its receivables, or alternatively its EBITDA. If liabilities are growing faster than receivables or operating profit, the company is unlikely to have sufficient funds to repay them, even if its reported revenues appear normal. I would also look at the company’s overall level of debt – around 60% of financing from external sources is average, while 80–90% already represents a riskas well as trade payables, which are often overlooked in financial indicators even though companies use them as a source of financing in much the same way as loans. This also applies to subcontractors in the construction industry, where margins have remained low for a long time, with a median of around 1.6%, roughly half a percentage point lower than in the rest of the market.

How are construction companies performing economically?

The number of insolvency proceedings in the construction sector has risen slightly over the past five years, from 69 in 2020 to this year’s high of 89, while the number involving sole traders has declined slightly. At the same time, the sector is growingalmost 4,000 new companies were established last year, roughly one and a half times as many as in 2020, while only a few hundred ceased trading. The market is expanding, but remains dominated by large players: around half of all revenue goes to companies with turnover exceeding CZK 1 billion, even though they account for just half a per cent of businesses in the sector. Even here, however, there has been a shift in favour of smaller companies. The development of the FinStat score is also interesting. In 2021, the construction sector was slightly riskier than the market as a whole, but since 2022 it has remained below the overall market average, falling to 31% last year, its lowest level in five years. This year, however, I can see the first signs of a reversal – the proportion of high–risk companies with a score above 70% has risen from just under 8% to 9% in the sector, mirroring the trend across the economy as a whole. At the same time, after several years of modest growth, both profit margins and EBITDA margins have begun to narrow. Whether this is a one–off fluctuation or the beginning of a more difficult period remains to be seen.

How much do you rely on artificial intelligence when processing data, and where do you think this is heading?

For many years now, our financial statements have not been transcribed by people, but using OCR technology, which we combine with today’s language models. On top of that, we have our own validation algorithms, so everything undergoes multiple checks before we publish the data. Only if a document fails these checks is it passed on to a person.

The key difference compared with the judicial system is that the data does not remain in the form of scanned PDF files that users have to download and go through themselves. We extract it into clear tables that can be filtered and analysed across hundreds of thousands of companies at once. Algorithms can already calculate the indicators today. What I think will change is the interpretation. At present, you still need a financial analyst who knows how to read the numbers, but language models can already provide a decent interpretation, and in five to ten years they will be so good that they will replace junior analysts and perhaps even more experienced ones.

How do companies actually use your database in practice, and what does it offer them?

People use it in two ways. They either check a specific company – its profile, score, financial indicators and insolvency history – and decide whether it is suitable for what they have in mind, or they work with the entire database using filters and rankings. They can export hundreds of companies to Excel and then import them into a CRM system, whether for sales purposes or when looking to approach companies with an investment opportunity.