What Do You Really Know About Your Tenant’s Financial Strength?
2018-02-21
Financial and legal viability are essential aspects of a tenant’s application for a commercial space. Without a clear, reliable picture of a commercial tenant’s financial strength, owners and managers risk aligning themselves with potential loss and instability rather than gain and stability. Here is what you need to know about your tenant’s financial strength.
Financial Statements. Financial statements are a logical and essential starting point in the lease underwriting process. After all, if tenants cannot afford lease terms while operating its business profitably, then the relationship between owner and tenant need not be pursued.
Financial statements include the balance sheet, the income statement, the cash flow statement and explanatory notes. The balance sheet, also referred to as a statement of financial position, reveals what a business owns, what it owes, and the difference between the two (also known as the equity interest). These three elements are to be in balance and are limited to revealing a company’s financial situation at a certain point in time.
The income statement, also known as the profit and loss statement, reflects a company’s performance over a period of time–annually, quarterly, or monthly, for example. Revenue and expenses yield the net gain or loss. Some managers focus on this number alone. However, without consideration of the prospective tenant’s full financial picture, owners may miss a valuable addition to their portfolio or mistakenly choose the wrong tenant for a prime space.
The final piece of a financial statement is retained earnings, which measures assets gained through profits and retained rather than paid out to shareholders as dividends. In short, the greater retained earnings, the stronger sign of financial strength when combined with positive results from other parts of the financial statement.
Knowing how to read financial statements, while important to analyzing a tenant’s financial strength, can also be challenging for managers and owners already pressed for time and resources. (RE)meter does this work for owners and managers in the time it takes to drink a cup of coffee.
Lien Search. A picture of financial status is incomplete without confirmation that a company’s assets are free from liens. Decisions based solely on financial statements can lead owners into a financial mess. (RE)meter’s TIL Score relies on government-certified data to provide further insight into the whole financial picture of a prospective tenant.
State Corporation Commission (or similar regulatory agency). Regulatory agencies at the state level monitor and retain records for companies within each state. These records can enlighten commercial property professionals on the status companies in regard to their registration, annual report filings, and more.
When owners and managers are equipped with time-saving and reliable tools like (RE)meter offers, the lease underwriting process becomes easy and efficient. With tools like TIL Score, Industry (RE)port, and Annual Tenant Review, an owner’s portfolio can operate efficiently with reassurance and actionable insight.
