A tenant improvement allowance is an amount, agreed upon during the negotiation of a commercial lease, that an incoming tenant can spend to retrofit or renovate an office space.
If your business plan includes a lease and you need to represent a tenant improvement allowance in your forecast, you'll need two entries:
- A long-term Asset entry representing the dollar value of the improvement
- An Investment entry to balance the expenditure
Entry #1: Asset for the value of the improvement
- In the Forecast section, click Assets:
- Click the Add Asset button:
- Name the asset, and click Next:
- Select One-time amount, and then enter the full amount of the allowance. Select the month in which the improvement work will begin:
- Click Long term, and enter the useful life of the improvement. Under Do you plan to resell this asset, click No:
Note: In the U.S., the useful life of a tenant improvement is often the length of the lease. But we recommend checking with your accounting advisor to make sure this is accurate for your local area.
- Click Save & Close.
- The Assets table will now show the value of the improvement, depreciating over time:
Entry #2: Investment to balance the asset entry
Note: The asset entry you created in the previous step represents the funds being spent on the improvement. This Investment entry places the cash into your forecast for that expenditure.
- In the Forecast section, click Financing:
- Click the Add Investment button:
- Select One-time amount. Enter the same amount as you entered in your asset entry, and select the same month in which the improvement work will begin:
- Click Save & Close.