Quick Guide To Reviewing Business Accounts
If your tenant is an established business then they should be willing to provide you with up to 3 years of their most recent business accounts.
Accounts can either be audited or unaudited. Audited accounts are always preferred as this means the accounts have gone through a process where various random transactions have been checked for accuracy.
Unaudited accounts are those accounts created by an accountant or the individual but without the information being checked or verified. Just because accounts have come from a solicitor it does not mean that they have been audited. Unaudited accounts can be exaggerated or contain errors.
The most important aspect to review is the net profit. A simple profits test for affordability is if when reviewing the previous 3 years accounts, can the tenant show 3 consecutive years where net profit is 3 times the annual rent. This profit test should be based on the audited accounts.
A business’ financial health can be measured by looking at three key aspects:
When reviewing accounts, you should consider the following:
Always speak with your accountant if you are unsure about reviewing a tenant’s accounts.
The remainder of this document is available to customers who have purchased a Virtual Commercial Package.