What to do with your trade fund in times of crisis?

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Professionals who own a trade fund hope that 2020 will end quickly. And for good reason. COVID-19 impacts their business in depth, as well as their results, and even prevents certain sectors of activity from operating. For these professionals, their trade fund represents the heritage of commercial activities. In this situation, the shutdown or decline in activity primarily affects their balance sheets, and their good financial health. Walter France, a network of accounting firms in France, supports executives in the management of their commercial funds.

Amortize, or depreciate its trading fund in difficult times

For a company, the trade fund aims to increase value over time, thanks in particular to the increase in attendance, notoriety… And sales. In some situations, an officer may choose to write it down, but this amounts to a gradual and irreversible loss of value of the asset. However, according to Walter France, this depreciation is useful in some situations. For example, where the trade fund has a limited lifespan, especially if the lease is in the public domain, with no guarantee of extension.

Hairdresser salon client mask
Hairdressers are among the professions affected by COVID-19.

In this case, the manager may, if he has an index on the life of the trade fund, depreciate the fund over the remaining term. On the other hand, if this is not the case, then it can adopt a flat term of 10 years. This option applies in particular to companies with a turnover of less than 12 million euros, and whose total balance sheet is less than 6 million euros. In short, depreciating its trading fund is tantamount to depreciating its own capital. But the balance sheet reflects the value of the company at the moment T.

In other situations, such as the COVID-19period, an executive may request the depreciation of his trading fund. Establishments such as restaurants are particularly affected. The depreciation then applies if a trading fund loses its value. Not to mention the closing periods, the restaurants had to adapt their reception measures for customers. More spaced tables, lower capacity… These are all factors that influence the company’s financial results.

Focus on economic transparency to better rebound

The depreciation of a trading fund is thus a reflection of a difficult situation for an executive. Without respect for pre-defined cumulative conditions, it cannot be tax deductible. Thus, the depreciation must be effective during the current year and have financial effects on the turnover and profitability of the company. In addition, the situation must affect the entire trade fund in order to be admissible. In short, concern the body, and the intangible, and demonstrate the constraints suffered, such as imposed closing days. That is the case, in this case, at the moment. The depreciation, according to Walter France, shows the loss of value, but not irreversible. Indeed, the depreciation is not definitive. It can be taken up again in the next financial year, and it can be reintegrated into equity.

Acting transparently also helps to strengthen the trust of institutions, and to promote financial aid in the future. Thus, in these situations, the leader is responsible for his statements and acts. To justify a write-down or amortization of its trading fund, it must then produce an annex to the balance sheet if the value of the fund is directly affected. But in this exceptional situation, a leader must turn to a professional, such as an accountant. The experience and advice of these experts makes it possible to better manage the afterlife, and to concentrate serenely on its activities and the further development.

Sources:

  1. Should its trade fund be depreciated or depreciated?, Walter France’s statement of 5 November 2020
  2. Amortization and depreciation of commercial funds,Legifiscal, article of December 28, 2019.
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