6 ways to legally boost your balance sheet permanently

We use our expertise to help clients maximise their assets where legally possible in accordance with UK GAAP or IFRS. This is especially useful for companies who need to meet gross asset or capital requirements such as FCA firms or raising bank loans or complying with bank or investor covenants. However, the methods below are not always possible and there will also be tax consequences.

The methods below are of a permanent or long term nature and do not involve window dressing or other short term methods, so the accounts should still be true and fair and have a clean audit report if all the relevant criteria are met.

1) Recognise intangible assets

If your company has spent time or money developing intellectual property then the chances are that it can be capitalised on the balance sheet if certain criteria are met.

For example, one of our clients spent £200k developing an online payments platform as well as other mobile apps. We reviewed the contracts and looked at how the systems worked and after discussions with management were able to confirm that an intangible asset had been created. One of the main factors in particular was that the platform was already generating significant revenue, however, even if a company is loss making or a startup it may still be able to capitalise intangibles depending on their profit forecasts.

Staff time can also be capitalised. For example on an FCA client, we looked at how much time a director and his staff spent on building and developing  a complex quantitative model to monitor financial trading signals as opposed to maintaining it and fixing bugs. We were then able to advise on the percentage of staff costs that could potentially be capitalised.

Intangible assets such as those above can also qualify for tax relief on amortisation.

We also found that a mining client had spent significant amounts on legal fees and we were able to capitalise these as exploration and evaluation assets.

2) Turn tax losses into a deferred tax asset

If its probable that the company will generate sufficient profits in the future to utilise tax losses then the future tax benefit can be recognised as an asset.

This one is often tricky to convince auditors (such as ourselves!) but at the end of the day, if cashflow forecasts are good enough to satisfy going concern, then they could potentially support a deferred tax asset especially if a company is beginning to turn a corner and is close to generating profits.

3) Make sure all income has been accrued

If you bill clients at the end of a job then you could potentially have work in progress at the end of the year which has a value. This will often have to be brought into your revenue stream anyway to ensure that income is recognised in the period in which it is generated.

Some companies may have intercompany fees, licences or royalties charged to foreign subsidiaries or connected companies. For example, one of our clients has a UK system and we helped them to setup a licencing fee to a foreign company under an intercompany agreement. This will increase turnover and assets as long as the debt is recoverable. For a profit making group this won’t be a problem, however, if there is no chance that the subsidiary or connected company can pay the fees in future, then the debt will need to be written off or impaired.

4) Convert debt to equity (or subordinate it)

If directors have used their own funds to finance a company then this will be a liability on the balance sheet. One simple way to boost the balance sheet and to reduce creditors is by issuing shares to the director in exchange for writing off the debt. This would also avoid a tax bill which could occur if the debt was written off to the profit and loss. If the shares are issued at market value then this will also avoid income tax for the director.

FCA firms can also subordinate the debt for at least 5 years to include it in their capital calculations and we can advise on how to do this using a subordinated loan agreement.

One of our clients tried to do this using preference shares, however, care needs to be taken because if they are redeemable preference shares then the debt component still needs to be presented as a liability on the balance sheet.

5) Revalue property

If your company owns its own premises or has investment properties then these can usually be revalued upwards based on management’s estimates. A more formal independent valuation may also be required in certain circumstances.

6) Issue shares!

We left this one till last as it sounds a bit obvious but many of our clients have raised funding from investors, for example £100k-£200k from angel/seed investors, £0.5m from VCs and £m’s from AIM. If you’re unsure of the process, we can help you to prepare a pitch deck and financial projectors and help you to approach potential investors.

 

We can give you tailored advice to boost your balance sheet

As you can see we use our specialist expertise in a joined up way to think about accounting and tax requirements. The above examples can sometimes get quite tricky so its definitely worthwhile seeking professional advice. You can contact us here for further information.