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Business Needs – Scaling for Lease Accounting

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  • iLeasePro Lease Management Solution

    Scaling Your Lease Accounting Software to Your Business Needs

    If you’re trying to grow your business, you’re probably well aware that scaling has become something of a buzzword.

    First things first, then—let’s set up some terminology for dealing with scaling. When it comes to business growth, scaling is about shooting for exponential growth rather than just increments.

    But what about scaling your lease management and lease accounting software? Existing leases are a huge expense for many businesses, and they rely on lease management and lease accounting software to help crunch the numbers and manage the data, especially when considering the ASC 842 Lease Accounting Standard.

    Today’s lease management software can do much more, though, especially if you know how to scale it to meet your business needs.

    But what does that mean, really? Many CFOs and managers don’t really know, nor do they know how to scale their leasing portfolio properly, so let’s explore what’s possible when it comes to scaling your lease management software to grow your business.

Identify Your Needs

The first step in the scaling process is to identify your needs, and that starts with knowing the size of your leasing portfolio and what the most critical leases and leasing issues are.

That’s a lot of questions, so let’s take a deep breath. Breaking down the size of your lease portfolio into small, medium, and large can go a long away toward getting you out of the woods when it comes to scaling your software, and so can doing a basic breakdown into equipment vs property to help clarify your situation.

Once you’ve done that kind of breakdown and Q-and-A, though, your answers will help dictate where you go next when it comes to scaling your leasing software. And there are some specific steps you’ll need to take, so let’s take a closer look at those.

So let’s get specific.

  • How many leases are you carrying, exactly? Can you even say?
  • Are most of them property leases, equipment leases or a mix of the two?
  • Do you have any embedded leases?
  • Which ones are the most important?
  • Do you have other business-oriented leases that are specific to what you do?

That’s a lot of questions, so let’s take a deep breath. Breaking down the size of your lease portfolio into small, medium, and large can go a long away toward getting you out of the woods when it comes to scaling your software, and so can doing a basic breakdown into equipment vs property to help clarify your situation.

Once you’ve done that kind of breakdown and Q-and-A, though, your answers will help dictate where you go next when it comes to scaling your lease accounting needs. And there are some specific steps you’ll need to take, so let’s take a closer look at those.

Scaling Considerations

Many businesses still struggle to know where to start when it comes to scaling their lease accounting software, even after they’ve answered the aforementioned questions and clarified their situations. The prioritization of the required tasks and highest value leases is a great start, but we also need to consider how your business will need to scale as your lease portfolio grows. We will also need to throw into this mix the requirements of the introduction of the ASC 842 Lease Accounting Standard into the company's internal functional areas as well. So let’s dive into areas you may want to consider.

Corporate

  • Roles and Responsibilities. Will roles change regarding lease management now that liabilities will be added to balance sheet? Who will be responsible for overall management of leases now that the liabilities will be shown on the balance sheet? Will an organization restructuring be required?
  • Governance/Controls. What existing governance controls must be modified and what new controls may be required? What Policies and Procedures will require modification? A centralized approach may be needed – can this be accomplished with the current organizational structure? Who will approve any new policies and procedures? What is the flow through the corporation to approve these changes?
  • M&A Strategy. Are we planning to grow through M&A opportunities? Do we have a process to evaluate the additional leases that will be added to our lease management and lease accounting software? How will we integrate these new leases considering different accounting systems may have been used?
  • Lease Accounting Changes. Are the lease accounting changes fully understood? What needs to change and what will the impact be on the operational, organizational and even contractual levels? Has a timetable been developed that will ensure that all required tasks have been successfully completed by the effective date?
  • Internal Audit. Is Internal Audit part of the team and working with business units and strategic managers to develop and implement a plan to assess current systems, policies and procedures?
  • Internal Communication. How will communication of key issues and resolutions be socialized throughout the corporate structure?
  • Tax Implications. Does the income and/or franchise tax strategy require revision? Many states utilize a property factor to determine tax liabilities that may impact state property taxes for real estate. Some states use GAAP financial statements to determine franchise taxes. How can we determine if there will be an impact on taxes? Has the impact on deferred taxes been assessed?

Finance / Treasury

  • Investor Communication. How will we communicate the changes in the financial reporting to investors? How will we communicate the plan and progress of the transition process?
  • Contract Administration. Are the lease data required by the new standards available or will it be necessary to gather the missing data from the lessor(s)? Are all active leases available to be abstracted?
  • Loan Covenants. Review the financial covenants on the existing loan agreements to determine if the change in the company ratios will cause a loan default. Who will work with the lenders on any issues found and negotiations required? Do we have the primary contact information at the lending institution?
  • Ongoing Leasing Strategy. How will the corporate lease strategy be impacted? Should you buy out current leases? Should active leases be renegotiated? Should we emphasize buy versus lease? Additional real estate and equipment acquisitions must be evaluated based upon the impact on business valuation, free cash multiples, purchase price allocation and post acquisition ratios.
  • Budget and Forecasting. How can the new calculations be integrated into the existing budgeting and forecasting process? Do we need to include any other resources into this process to consider changes in leasing strategy?
  • Performance Metrics. What financial ratios will be impacted and how will they be impacted? What will the changes in these ratios mean to the business? Can we prototype the changes into our financials to understand the impacts?
  • Financial Reporting. What is the impact on financial reporting, key ratios and disclosures required? Will the lease accounting solution include the reporting that we will need for the new standard?
  • Capital Requirements. Issues that are specific to banks, credit unions, insurance companies and other financial institutions that are subject to strict capital requirements and could face regulatory scrutiny. How will the requirements be determined? How will the institution comply?

Technology

  • System Evaluation and Assessment. Who will determine what systems need updates? Are there any gaps in the current systems? Can current systems support required changes? Do you need to organize a task force to assess current systems, identify gaps, research and procure new systems?
  • Accounting System.Will current accounting system support the new compliance? Will Primary Accounting system integrate with Lease Accounting solution?
  • Reporting Systems. Who will identify which reports will require modification or what new reports are needed? Will current financial reporting produce disclosures that will be required?
  • Lease Management and Accounting. Is a lease management system in place that captures the key information required for new standards? Does the current system aggregate and calculate the rent data to allow for the calculations to be made? Any system integration issues that must be addressed?
  • Contact Management. Has the contact information for all lessors, bankers, insurance reps, property management firms been captured and made available?
  • Document Management. How will electronic versions of all the leases, lease amendments and lease addendums that have been identified be stored, tracked and accessed? Will scanning of hard copy documents be required?
  • Infrastructure. Will existing infrastructure support the additional data that will be required to be stored? Will additional hardware and software be purchased? Should this effort be hosted or maintained internally? Are there any new security requirements with these changes?

Human Resources

  • Resource Availability & Skill Level. Are resources available to perform tasks required? Do in-house resources have the required skills to complete planning and transition?
  • Outsourcing. Will outsourced resources be required? Do we have a preferred outsourcing firm with these skills?
  • Compensation Plans. Is compensation of employee remuneration contracts based on any of the metrics/ratios that will change? Will these changes impact commission structure? Should the contracts be re-negotiated?
  • Training. With all these new processes and potential new systems how will we train our employees? Can we cross train existing employees to help out with new requirements?

Let’s take an example.

Say you’re a lessee with dozens of leases that support the core of your business. Some leases are real estate, others are equipment, and the task of using lease accounting software to collect and use the data you need seems to be a challenge. And then with the ASC 842 Lease Accounting Standard requirements, you are just completely overwhelmed on how you can comply.

You probably need a software package that’s going to store information in the cloud for that level of lease portfolio, and you’re going to need features that can handle a large amount of data and meet the needs of the ASC 842.

That means you’ll also need a flexible dashboard that’s easy to use, and it will have to provide a breakdown of what functions you need to be able to perform.

Questions like; Do you need to share that information among multiple departments? Do you have a central repository of lease data that everyone can access? will be very important to answer.

But what about those features that you won't need. For example if you are a private US domestic company you probably don’t need international capabilities like multi-currency or multi-lingual when it comes to handling journal entries and payments, so there’s another feature you don’t have to master.

What you do need to handle more than anything is your payments and ensuring that your journal entries comply to the ASC 842, so those are likely your highest priorities. You also need information about your various properties—where they’re located, basic terms of the lease, the ongoing status of the different transactions, information about clauses and options, and so on.

Moreover, you need to be able to access that data instantly. You need to be able to do quick calculations that will inform you about the state of your business, and you’ll have to have comprehensive, accurate reporting that will show you any adjustments you need to make to the terms and end of year ASC 842 reporting pertaining to your leases.

This particular scenario is just one example, of course. Scaling your lease management software will be a completely different undertaking if you run an equipment-based business, for instance, so you’ll be using very different use-cases.

But the procedures will be analogous, and maybe even similar, too. The information and workflow process you get from a top-shelf lease management package is nearly always the same, especially when it comes to scalability.

  • iLeasePro Lease Management Solution

    The Scaling Equation

    So let’s review. Regardless of your scaling needs, though, most business owners will be looking for a package with a comprehensive lease management software package that can meet their immediate needs and grow with them as their business expands.

    Ideally, the software will make information instantly available in the cloud, and it will streamline every aspect of the real estate and equipment cycle.

    The basic accounting features will be comprehensive and easy to use, and the package as a whole will have analysis features that will allow you to assess the state of your leases and make changes, adjustments, and improvements on the fly.

  • iLeasePro Lease Portfolio

    The iLeasePro Scalability Solution

    At iLeasePro, we’ve been helping businesses of all sizes and shape scale their lease management software for a long time. We’ve seen just about any problem that can arise, and we’ve come up with solutions to issues that mystify a lot of our competition.

Want To Learn More?

To find some great information about scaling go to iLeasepro.com. You can chat more with our experts to get any questions answered. Once you do, you’ll want to use our software to manage your leasing portfolio which will also help you scale your business in ways you never thought possible.

Try it today and see for yourself how easy it is to use! View our pricing and Schedule A Demo Now to learn more and see how iLeasePro can work for you.

Let iLeasePro Simplify Your Lease Accounting

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