Before signing a commercial lease, you must understand what financials are needed. You should also question whether the landlord has a right to ask for them. The financials needed to run a business are similar to the ones needed to run an individual’s home. This means you should have enough income during the year to cover all of your expenses as well as any other monetary obligations that come up throughout the year.
It’s important for you to make sure taking on a lease isn’t going to put a financial burden on your business. Depending on mortgage rates and other specifics, sometimes a mortgage makes more financial sense than a commercial lease. Your accountant can help you determine what’s best for your business.
What does it mean when a landlord asks you to provide “Financials”?
Financials are the same thing as your financial statements. A balance sheet is a report that shows assets. This includes the amount of money you have in your bank account. The balance sheet also shows the amount of money you owe. The income statement shows how much you earn as well as how much you spend on rent, utilities and other bills.
Commercial landlords want to see your financials to determine your ability to pay rent. The most common reason behind this question is usually a landlord’s past problems with tenants paying late or not at all. A landlord may ask for financial statements to verify their tenant’s ability to pay their rent on time every month. This type of request usually occurs during an initial application process.
Business financial statements and requirements for a commercial lease
When a landlord asks you to provide financial statements for their review, it’s important that you understand what they are looking for. This will help you prepare your statements correctly and avoid any confusion or misunderstanding on the landlord’s part. The most common financial statement that a landlord wants to see is the income statement.
A tenant should include all of their business income in this report. This helps the landlord determine whether or not your business can afford their rent payments every month. In addition, all of your expenses should also be listed on the income statement. You may also be required to provide a balance sheet. This statement includes details about how much money is in your business bank accounts. The balance sheet also shows amounts owing by you such as loans, accounts payable, and taxes payable.
Providing reports from Xero
If you are using a program like Xero, it’s easy to find the financial reports your potential landlord will ask for. With Xero’s built-in reporting tools, you can create financial statements at a moment’s notice. The reports can be marked as “draft” if final financial statements haven’t been completed by your accountant. You can access your financials through the Reports Tab in your Xero dashboard.