Implementing a new lease accounting software is a complex but crucial step toward ensuring compliance with accounting standards and improving efficiency. Many companies encounter challenges during the implementation process, which can lead to delays, errors, and increased costs. Visual Lease has worked with hundreds of companies going through lease accounting implementation. In this article, we’ll explain the missteps and oversights we’ve seen that resulted in wasted time and effort, caused project delays, and opened up these firms to significant risk of inaccurate financial reporting. We’ll also share advice to help companies avoid these pitfalls and experience a smoother (and less stressful) transition.
1. Underestimating the time and resources required
Ask anyone who has helped companies through lease accounting implementation projects, and they will all tell you the same thing: many firms underestimated the time and the resources needed to get it done. So they waited too long to get started. And they failed to engage the help they needed early enough. We actually had a company come to us only 4 weeks prior to their implementation deadline! We were able to help, but needless to say it was a difficult period for them that stretched right up until their first quarterly reporting date in March.
Before accounting teams fully understand the scale and the scope of transitioning to a new lease accounting software, they often assume it will be a simple matter to gather data, do a few calculations, and produce journal entries. In reality, there are many more accounting complexities, logistical issues, and technical details than you may expect. If you wait too long to start or fail to plan for adequate resources, you can easily be blindsided by unexpected issues and wind up not being ready in time to meet your deadline.
Read this for details you might not know about lease accounting implementation: How to Implement Lease Accounting Technology
2. Choosing the wrong implementation team
Because lease accounting implementation is a complex project with high stakes and many stakeholders, we highly recommend having an experienced project manager spearhead your effort. That person could be someone from your own internal project management team, an outside consultant, or even a representative from your accounting advisory firm.
When it comes to putting together the rest of the team, don’t go too big or too small. With a team of 15 people, you’ll face analysis paralysis and take too long to make decisions. However, if you leave out key stakeholders, you run the risk of making mistakes that are costly and time consuming to fix later.
For example, it’s essential to include representatives from Real Estate and others who manage your leases. These lease experts can make sure you are collecting important data that you’ll need for performing calculations and journal entries. For example, we worked with one company that came to us thinking they had all their data ready for importing. However, they missed an important component: they had no commencement dates for their property leases. That happened because they collected payment information with no input from the Real Estate team.
3. Configuring your lease database too soon
It’s certainly smart to engage your lease accounting technology vendor early in the process. However, software implementation starts with gathering your requirements and building a database. If you have not yet made accounting decisions and begun to gather your lease data, you might not be ready to configure your database just yet.
Your vendor will ask questions during this process that you might not be ready to answer. If you guess wrong, you could make errors that mean re-work later.
The most efficient strategy (both for optimizing time and choosing the right software) is to make accounting decisions and gather data while you’re shopping for technology.
4. Making accounting decisions too late
We have seen too many companies jump into data collection before making the important accounting decisions that affect exactly which data points are needed for lease accounting calculations.
Practical expedients are a good example. The practical expedients you elect to take have an impact on how your data needs to be structured and broken down. We saw a company that had centralized all their lease payment data only to realize that due to a practical expedient they needed to break lump sum rents down into lease and non-lease components. That caused considerable re-work very late in the process, eating up the time they had planned for testing (more on testing to come).
Discount rates are also frequently overlooked. Some firms decide to use the same rate across the board for all leases, while others use a complex table of rates for different types of calculations. To avoid time consuming re-work and costly delays, It’s important to make those decisions BEFORE running your lease accounting calculations and producing journal entries.
5. Failing to validate your data
When it comes to testing, many firms focus on validating the mathematical calculations produced by their lease accounting software. Here’s the part you must focus on: making sure your lease data is complete and accurate.
If your data is wrong, the accuracy of your financial reports is compromised. We don’t need to tell you how serious the consequences can be when that happens. You could end up violating a debt governance. Reporting errors often require time-consuming investigation and adjustments to fix.
Are you sure you have a complete set of payment data from all leases? Are start and end dates valid? Have you included lease amendments?
We recommend developing models and testing with your actual lease data to uncover anything that you might have missed. If you find inconsistencies, you need to dig into what’s missing or incorrect in your data.
How can you avoid this last-minute panic?
- Include all lease stakeholders in the process so you capture accurate and complete data from the outset.
- Start collecting data now and get it into your lease accounting database as early as possible.
- Plan for plenty of time for data validation.
6. Neglecting User Training
One of the most common mistakes companies make is not prioritizing user training during the implementation of new lease accounting software. Employees who don’t fully understand how to use the system may struggle with data entry, reporting, and accessing the platform’s key features. This can lead to a lack of adoption, data inaccuracies, and underutilization of the software’s capabilities.
To avoid this, it’s important to begin user training early in the process and provide continuous support. Consider offering video tutorials and guides to ensure that all users feel confident and capable of using the software. Remember, a well-trained team is essential to maximizing the value of your lease accounting platform.
7. Skipping Thorough Testing Before Going Live
Rushing through the testing phase and skipping thorough tests is a mistake that can lead to major issues once your lease accounting software is live. Without properly testing how the platform functions, integrations, and data accuracy, you risk encountering system bugs, integration problems, or missing features that could affect operations and delay reporting.
Before going live, conduct in-depth testing using real data to ensure the system is performing as expected. Test key functionalities, like data migration, reporting, and automation processes, to catch any issues early. This will help you avoid disruptions and ensure that the platform is ready to fully go live.
Avoiding these common mistakes when implementing lease accounting software can make the difference between a smooth transition and a drawn-out, problematic process. With careful planning, ongoing support, and attention to detail, your business will be well-prepared to leverage the full potential of your lease accounting software. If you’re looking for assistance with implementing Visual Lease’s platform, contact us today. Our team provides implementation services to help simplify the process and ensure a smooth migration.
