In commercial leases, a tenant improvement allowance is a pre-agreed amount that the tenant can use for office renovations. This allowance can cover costs such as interior build-outs, painting, floor installations, electrical upgrades, and other changes essential to making the space suitable for a tenant’s specific business needs. In exchange, the tenant typically agrees to lease the property for a set term, and the allowance terms are spelled out in the lease agreement. TIAs can play a significant role in shaping a business’s overall financial picture since they directly impact initial out-of-pocket expenses, capital investments, and projected cash flow requirements.
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:
- Select One-time amount, and then enter the full amount of the allowance. Select the month in which the improvement work will begin. Once entered, click the Type button beneath the asset name:
- Click Long term, and enter the improvement's useful life. 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. However, we recommend checking with your accounting advisor to ensure this is accurate for your local area.
- Click Create & Exit. 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 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 Create & Exit: