For those familiar with the process of navigating and managing commercial leases, one thing is clear, it is not a simple process. For many businesses, the process of managing a lease portfolio can feel overwhelming. Leases are complex documents that contain detailed financial information, a fair amount of legalese, and business terminology that can border on the arcane. Fortunately, there are plenty of effective tools to manage your leases. A lease abstract is one of the best– largely because of the way it simplifies and summarizes your leases. But it’s important to know how lease abstraction works, what information lease abstracts provide, and how you can best use it, so let’s do a deeper dive into the world of lease abstraction.
What is Lease Abstracting?
We’ll start with the basics. Lease abstraction is a process that condenses and simplifies the most important and frequently used information in a commercial lease. That process produces a lease abstract, which is a concise summary of a lease agreement that’s easy to read and understand. It captures key concepts and puts the essential information up front in an accessible format so that you can put it to work to use your leases as assets, operation more efficiently and make good business decisions.
Lease Abstracts and the Lease Abstraction Process
The lease abstraction process starts with analyzing the lease. While the overall process is complex, it can be broken down into two basic steps: Identify all of the cash flow transactions associated with lease payments. Calculate the current net value of the lease by using a discount rate and a spreadsheet program or financial calculation program like Excel.
Who Does Lease Abstraction and What Lease-Related Skills Are Involved?
Not surprisingly, lease abstraction is a specialty that’s generally performed by experts, although there are software packages available from companies like iLeasePro that simplify the process. It takes years of training and an impressive combination of skills that can be summarized as follows:
Who Does Lease Abstraction and What Lease-Related Skills Are Involved?
- Financial analysis
- Information analysis
- Coding skills
- Training in GAAP (Generally Accepted Accounting Principles)
- Legal training to understand legal principles and the language used in documentation
Understanding and Experience With Commercial Leases
How Lease Accounting Fits into Lease Abstraction
The accounting-specific information gathered during the lease abstraction process is critical. It needs to be accurate, relevant, and summarized in a way that makes it easier to understand.
Moreover, it has to be compliant with any number of important standards. These start with basic principles associated with GAAP practices, but they can also include a number of other standards:
- ASC 842 (Accounting Standards Codification)
- IFRS 16 (International Financial Reporting Standards)
- GASB (General Accounting Standards Board)
What Software is Used in Lease Abstraction?
Several types of software are used in the lease abstraction process, and they all play an important role.
- Many complex business leases contain dozens or even hundreds of pages. That’s a serious amount of data, and all need to be accessible in one place, often a database, so that personnel from multiple departments can access it.
Lease accounting software
- Much of the data contained in a lease is numerical, and extracting it and performing the necessary calculations is a critical part of the data collection process.Beyond that, though, any number of calculations are required to track lease transactions. Lease accounting software performs these calculations, then presents them in a format that makes them easy to understand and analyze.
AI-Based Lease Software
- As the lease analysis process becomes more sophisticated and complex, AI is playing an important role in how lease data can be used effectively throughout an organization.
- Lease software that implements AI capabilities can make accurate predictions about the effectiveness of individual leases, based on both the terms of the lease and changing economic conditions.
- Those predictions provide a model for managers and executives to make effective decisions to improve business procedures and increase both profit and revenue.
- To understand and use leasing information, it has to be presented effectively in a variety of different reports.
- Part of the leasing abstraction process is deciding what information needs to be presented in these reports, and the software used to generate these reports is an important part of that process.
How Abstraction Helps Lease Administration
One of the primary focuses of lease administration is data. To be effective, data has to be captured accurately, then simplified so that key data points can be easily understood by managers and executives. This helps them make good business and financial decisions that can increase the effectiveness of the lease profile as a whole. Here are some of the things involved in lease administration that need to be presented by the lease abstraction process:
- Tracking critical dates
- Contracts and the significant clauses they contain
- Data mapping to understand how the lease is structured
- Updates and reminders to make sure information is current and accurate and payments are made on time.
How to Use the Abstraction Process for More Effective Lease Management
One of the primary focuses of lease administration is data. To be effective, data has to be captured accurately, then simplified so that key data points can be easily understood by managers and executives.
This helps them make good business and financial decisions that can increase the effectiveness of the lease profile as a whole.
Here are some of the things involved in lease administration that need to be presented by the lease abstraction process:
- As a predictive tool based on past performance. If you’re updating or taking on a new lease, abstracts based on the data you already have can be an excellent predictor of future lease performance.
- Snapshot management. By generating an abstract at any point during the life of a lease, you can get an idea of how the lease is performing.
- Post-lease analysis. Abstracts provide an excellent tool to analyze lease performance once the terms of the lease have been fulfilled and the lease has been terminated or updated.
This can be difficult to do while estate leases, for example, are in progress, so doing it more extensively after the fact can provide invaluable information and insights.
Get the Best Lease Accounting Solution from iLeasePro
At iLeasePro, we understand every aspect of leasing, especially lease abstraction. We know what information you need, how to get it, and how to present it in the simplest and most effective format. We also know all the standards that are involved in producing superb lease abstracts, especially when it comes to ASC 842.
We’ve provided lease accounting software for small businesses and for larger companies as well. Our lease accounting software pricing is among the best in the industry, and when you call us we can set you up with a lease accounting software free demo.
To do this, call us at 888-351-4606, or send us an email at firstname.lastname@example.org. We also have plenty of great information about lease accounting software on our website, which is ileasepro.com, and you can chat with a live representative there as well.
Lease abstraction is a valuable process that simplifies and condenses the important information in commercial leases into a concise summary called a lease abstract. This summary is easy to read and understand, enabling businesses to effectively manage their lease portfolios and make informed decisions.
Lease Abstraction Process
The lease abstraction process involves analyzing the lease, identifying cash flow transactions associated with lease payments, and calculating the current net value of the lease. While lease abstraction is often performed by experts, there are software packages available that streamline the process.
Who Does Lease Abstraction?
Lease abstraction requires a combination of skills, including financial and information analysis, coding, knowledge of GAAP principles, legal training, and familiarity with commercial leases. Accurate and relevant accounting-specific information is crucial during lease abstraction, ensuring compliance with accounting standards such as ASC 842, IFRS 16, and GASB.
Lease Abstraction Tools
Various software tools are used in the lease abstraction process, including data collection systems, lease accounting software for numerical calculations and reporting, and AI-based lease software for predictive analysis and decision-making.
More Effective Lease Management
Lease abstraction greatly assists in lease administration by capturing and simplifying data, tracking critical dates, identifying significant clauses, understanding lease structures, and ensuring accuracy and timeliness of information and payments.
Benefits of Lease Abstraction
To maximize the benefits of lease abstraction, businesses can use it as a predictive tool, generating abstracts based on past performance to forecast future lease performance. It also enables snapshot management, providing insights into current lease performance, and facilitates post-lease analysis to evaluate lease performance once the lease is completed.
iLeasePro is a reputable provider of lease accounting software, offering solutions for small businesses and larger companies. Their software helps simplify lease abstraction and ensures compliance with standards like ASC 842. They offer competitive pricing and provide free demos to interested parties.
By leveraging lease abstraction and utilizing effective lease management solutions, businesses can optimize their lease portfolios, enhance decision-making, and improve overall financial performance.
Frequently Asked Questions
How does automated lease abstraction improve efficiency in the operation and management of my portfolio?
Automated lease abstraction improves efficiency in the operation and management of your portfolio by streamlining the process and reducing manual labor. It can quickly extract key information from leases, condense it into a concise summary, and present it in an easily accessible format. This saves time and effort compared to manually reviewing and analyzing each lease individually, allowing you to handle a larger volume of leases more efficiently.
How can understanding the lease abstraction process and outsourcing lease abstraction help?
Understanding the lease abstraction process and outsourcing lease abstraction can provide several benefits. Firstly, understanding the process helps you grasp the essential elements of your leases and enables you to make informed decisions based on the summarized information. Secondly, outsourcing lease abstraction to specialized experts or utilizing lease abstraction software can further enhance efficiency and accuracy. These professionals have the necessary skills and knowledge to efficiently abstract and summarize leases, allowing you to focus on other critical aspects of your business.
Do I need lease abstraction software to prepare a lease abstract?
While lease abstraction software can be advantageous, it is not always a requirement to prepare a lease abstract. You can have manually abstracted leases by carefully reviewing and extracting the key information. However, using specialized lease abstraction software can significantly expedite the process, ensure consistency, reduce human error, and provide additional features such as automated calculations and reporting. It ultimately depends on the volume and complexity of your lease portfolio and your preference for efficiency and accuracy.
How does automated lease abstraction save money?
Automated lease abstraction can save money in several ways. Firstly, it reduces the labor costs associated with manually abstracting leases. By automating the process, you can accomplish the task faster, allowing your employees to focus on more strategic and value-added activities. Additionally, automated lease abstraction minimizes the risk of errors and discrepancies, which can lead to costly mistakes or missed opportunities. It also provides better visibility into lease data, enabling you to identify cost-saving opportunities, optimize lease terms, and make informed decisions about lease negotiations and renewals. Ultimately, the efficiency and accuracy gained through automation can result in significant cost savings over time.