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

No matter how attractive property in the form of business premises may be, it's potential disadvantages outweigh its benefits by a considerable margin. 

Expenditure and debt associated with physical non-current assets including property represent cash and / or financing resources that are no longer able to service a company's core trading operations and therefore unavailable to support further expansion..

Banks and other lenders are more concerned with risk, which is why, when assessing that they lump everything together, making no distinction between financing your trading and financing your property.

In any case, having less debt in the balance sheet is always very much better than having too much of it, especially when a large part of it is unconnected to financing operating cash-generating assets such as accounts receivable and stock on the shelves.

Do It Yourself

On the other hand if you want to eliminate rental inflation without affecting balance sheet liquidity, the smart way to do it is to acquire the property via your pension fund and become the company's landlord yourself.

Risks of Property in the Balance Sheet

A business investing in property is not a fail-safe investment either. In the event of an economic downturn, the value of property of all classes eventually suffer with commercial property usually the first to go and the last to recover.

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 its sale proceeds as a means to recover their debt, quickly and painlessly..

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