Property in the Balance Sheet

High value investments in the balance sheet such as freehold property are not core trading assets, so are best left to property companies.

Property and other Non-Current Assets

Broadly known as fixed assets, any physical non-current asset including property represents cash and / or financing resources that has been locked away and is therefore unavailable for financing core trading operations.

Most fixed assets are essential to those operations though but investing in property is not one of them.

Regardless of how attractive adding a high-profile investment to the balance sheet may appear to be, it is always working capital, positive cash flows and adequate returns from these that define the financial health and true value of any good business.

If one the other hand you want to eliminate rental inflation without affecting balance sheet liquidity, the smart way to do it is to acquire the property yourself via your personal pension fund and becoming the landlord..

Risks of Property in the Balance Sheet

A business investing in property is not fail-safe. In the event of an economic downturn, the value of property of all classes will be an early victim; most especially commercial property.

A significant investment in property by a trading company can then become a liquidity burden as opposed to a desirable asset.

Property and Secured Creditors

It is often argued that the presence of property in the balance sheet of any business can be reassuring to creditors. That can be so but not necessarily in a good way.

What is more likely is that if a company experiences problems that are likely to take time to satisfactorily resolve, secured creditors may use property as a get-out-of-jail card by forcing the business into administration and using that to get their cash back quickly and relatively painlessly for them.

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