Leases are complex documents that can be challenging to interpret. Critically important details are often buried deep within a lease and can be (literally) hard to find. — Multiply that by hundreds of leases that companies often have, keeping up with all the different lease provisions is even more demanding.
Yet, understanding lease obligations and options is a fundamental requirement of doing business and managing costs. A lack of insight into important lease details can put organizations at risk of unnecessary expenses — or of not meeting compliance requirements.
The penalty for not accurately reporting your lease obligations can include steep fines. These high stakes are what make a lease accounting and administration solution such a powerful tool — one that provides valuable insights that can help your business avoid unnecessary lease costs and maximize the return on your lease investments.
Let’s take a closer look at how a lease accounting solution can help you identify cost savings and improve your ROI.
1. Improved Visibility into Lease Obligations
For public companies, lease obligations have implications for the balance sheet and compliance. For private companies, these obligations also have an impact on compliance, as well implications for bank covenants and for stakeholders who are concerned with assessing business risks.
A lease accounting system should provide tools for not only automating vital accounting and disclosure reporting functions, but also ongoing tracking of all the leases in your portfolio.
Technology should make leases more clearly defined and understandable — providing fixed fields of data that improve visibility into key aspects of leases such as:
- Financials, including calculations and reports
- Critical dates — and the consequences of missing those dates
- Termination rights, like early termination, lease bailout (“sales kickout”), co-tenancy, exclusive use and sublet clauses
This high level of transparency regarding lease obligations helps you mitigate risks and stay on top of important lease details that need your attention.
For example, the system should alert you about an automatic renewal on a property lease you negotiated long ago — giving you the opportunity to determine whether the terms are still favorable or if they need to be renegotiated.
Similarly, with visibility into equipment lease auto-renewals, you can compare the lease cost with the current market value of the asset to determine whether it makes more sense to purchase than to continue leasing the equipment.
Some systems can also alert you to events that you have to act on by a certain deadline, such as lease buyout opportunities.
2. Additional Savings in Auditing Costs
By improving lease transparency and automating the tracking and accounting process, lease accounting technology helps improve the accuracy and thoroughness of reporting. In turn, this reduces the amount of back and forth with auditors, which reduces costs overall. (For example, one customer saved tens of thousands of dollars in auditor fees by using Visual Lease’s lease accounting system.)
Lease accounting software also should provide an audit trail, including a detailed log in which every lease change can be viewed. This helps to assure auditors that all lease information is up to date and accurate.
3. Analyses That Help Lease Negotiations
The reporting and analysis capabilities within lease accounting and administration systems should enable you to identify and capture information that is valuable to your business — information that can help you make decisions for the future.
For example, during COVID-19, many businesses reevaluated boilerplate language within leases and abstracted clauses related to lease terms such as force majeure, business interruption insurance and termination options.
A lease accounting and administration solution should enable you to search your leases for particular clauses that have been favorable to you — or, on the other hand, clauses that have not been beneficial — and use that knowledge when negotiating a new lease or a renewal.
For instance, you might uncover that your monthly rent includes duplicate costs for services you were not aware of and are also paying for separately, such as cleaning, repairs or trash removal.
Armed with this information, you may be able to renegotiate to have those costs removed from your lease agreement — or, you can cancel the services you have been paying for separately and take advantage of the services that the landlord provides.
4. Automated Lease Accounting ROI
For anything other than a small lease portfolio, manual accounting simply does not provide the tracking and analysis capabilities that a business needs to effectively manage leases on an ongoing basis. The alternative of outsourcing the task to an accounting firm can rack up thousands of billable hours in fees — a costly proposition for even a large company.
Automating the lease accounting process brings a new level of efficiency into your business while helping you use your leased assets more effectively, for a greater return on those investments. The bigger your lease portfolio, the greater your opportunity for savings.
5. Consolidating Leases for Cost Efficiency
One of the key benefits of lease accounting software is the ability to gain full visibility into your entire lease portfolio. For businesses with multiple locations or subsidiaries, this in-depth view makes it easier to identify opportunities for lease consolidation. By analyzing data across all leases, companies can spot underutilized spaces or redundant lease agreements that are costing more than they should.
For example, a company may discover that it’s maintaining several leases in close proximity, where consolidating operations into fewer locations could reduce overhead costs.
Consolidating leases can also help minimize other associated costs, like utilities, management, and CAM fees. Lease accounting software allows businesses to simulate these consolidation scenarios as well, helping decision-makers choose the most cost-effective strategy.
6. Centralized Lease Data for Better Decision-Making
Traditionally, lease data might be stored in multiple formats and systems across departments like finance, legal, and real estate. This can lead to confusion and delays in accessing accurate information. Lease accounting software consolidates all this data into a single system that allows different teams to work from the same set of up-to-date information.
This centralized access to lease data helps better collaboration across departments and allows decision-makers to make informed choices faster. Whether you’re evaluating renewal options, planning for expansion, or deciding on a lease termination, having all the necessary data in one place makes the process more efficient and can save money.
There are many benefits of using lease accounting software. If you haven’t chosen a platform yet, there are many things to consider to ensure you get everything you need for your business in one system. Choosing a premium software, like Visual Lease’s platform, ensures that your company will have access to all of these features and can save money while increasing your ROI. Reach out to our team today for more information and watch our demo video of how Visual Lease’s platform works.
