By: Joe Fitzgerald, Senior Vice President of Lease Market Strategy
Spreadsheet applications are easily the most important and universal accounting tools used today—so much so that you’d never guess the first version was actually developed as a school project.
As the story goes, in 1978, computer programmer Dan Bricklin was pursuing an MBA at Harvard Business School. His finance class was tasked with an assignment to make financial projections for a hypothetical corporate merger using ledger sheets, the painstaking way that accountants manually tallied numbers in the bygone analog era.
Bricklin, apparently intent on getting an A while also eluding the heavy workload, developed a spreadsheet on a personal computer to electronically process the calculations. The idea was completely novel and would prove to be revolutionary. In less than a decade, spreadsheet programs like Lotus 1-2-3 and Microsoft Excel were dominating the market. Nearly 40 years later, not much has changed. Excel and (now) Google Spreadsheets are still widely used applications in accounting – a fact that astounded Bricklin himself. “It’s like whoa, we haven’t thought of something better yet,” he said in a 2015 interview with Quartz.
It is surprising that Excel continues to be the prevailing accounting practice because it is limited in addressing today’s sophisticated accounting practices and standards, and for that reason, it has become notoriously error-prone.
Here are some of the ways that spreadsheets are falling short for businesses.
Managing Stakeholders and Line Items
Accounting requires managing a lot of moving parts. Many businesses have several – and sometimes, even hundreds of assets and multiple stakeholders (Real Estate, Finance, Legal and HR, among others), which each translate into different line items on a balance sheet.
When it comes to spreadsheets, this ever-growing list of assets and stakeholders is a hotbed for errors. Research has repeatedly shown that 90% of spreadsheets contain errors and 50% of spreadsheet systems have “material defects.” Not only can these errors be destructive to business fundamentals and operations, but poor accounting practices can lead to failed audits, internal control deficiencies, fines, blown debt covenants and reduced credit ratings.
Some companies have been transitioning to sophisticated and targeted software programs to help mitigate errors in bookkeeping, while also giving financial professionals time to perform higher-level tasks. In lease accounting, for example, specialized software is designed to address the critical and often nuanced needs of managing real estate leases, creating space for collaboration across different departments and stakeholders. These types of systems can track lease details both at the property level and throughout a portfolio, resulting in accurate financial reporting, efficient auditing and also, guaranteeing that critical deadlines are met.
This has become a common trend throughout the business sector. There is a widespread exodus to more targeted accounting solutions. Mark Garrett, the former CFO at Adobe Inc., summed up the problem with spreadsheet applications back in 2017 when he told the Wall Street Journal, “I don’t want financial planning people spending their time importing, exporting and manipulating data, I want them to focus on what the data is telling us.” Adobe transitioned away from Excel last year.
Navigating Lease Accounting Complexities using Excel
Lease accounting standards are also minimizing the effectiveness of spreadsheet applications like Excel. The Financial Accounting Standards Board (FASB) issued accounting guideline ASC 840 in 1976, two years before Bricklin first dreamed of a spreadsheet. ASC 840 was the practicing standard until 2019, when FASB’s ASC 842 went into effect for public companies, requiring these enterprises to record leased assets on the balance sheet. These regulations are a shake-up to the standard accounting practice, requiring more sophisticated financial calculations and involved accounting practices—and spreadsheets just aren’t designed for this level of complexity.
The business community at large is recognizing the limitations of spreadsheet applications as a result, and many companies—Levi’s, P.F. Chang’s and Coca-Cola, to name a few— have transitioned to tailored accounting solutions that better address modern practices. “Excel just wasn’t designed to do some of the heavy lifting that companies need to do in finance,” said Paul Hammerman, a business applications analyst at Forrester Research Inc., in an interview with the Wall Street Journal.
The pandemic also ushered in changes in business strategy that leads to the need for more sophisticated technology. Real estate has been central to these changes because for many businesses, real estate costs became a major liability during the pandemic. In the Commercial Real Estate in 2022: Outlook for an Industry in Recovery survey from Visual Lease, 100% of real estate professionals reported their tenants had requested changes to a commercial property lease in response to the pandemic, and in a separate survey conducted by Deloitte, 67% of respondents said they are executing a real estate rationalization program to either reduce, rightsize, expand or reduce ownership responsibilities.
The Benefits of Lease Accounting Software vs Excel
Lease accounting software offers a suite of benefits that far exceed the capabilities of Excel, especially for organizations managing large or complex lease portfolios. Unlike spreadsheets, which rely heavily on manual entry and fragmented processes, lease accounting software provides a centralized platform designed to simplify lease management and compliance.
One of the most critical advantages is centralized data management. Lease software stores all lease-related information in one place, allowing teams across departments to access accurate and up-to-date data at any time. This eliminates the risk of working with outdated spreadsheets or duplicate files, which can lead to errors.
Additionally, software offers automated compliance tools that streamline reporting under accounting standards like ASC 842 and IFRS 16. These tools handle complex calculations, such as right-of-use assets (ROU) and lease liability adjustments, ensuring accuracy without manual entry. With automated compliance, businesses can prepare accurate financial reports, avoid audit risks, and meet regulatory standards.
Lease accounting software is also scalable. As businesses grow, their lease portfolios often expand. Unlike Excel, which becomes increasingly difficult to manage with larger datasets, specialized software can easily accommodate more leases by offering tools to manage the additional volume without decreasing efficiency or accuracy.
Data Security Features
Data security is a growing concern for organizations managing sensitive financial information, and Excel simply doesn’t provide the safeguards needed to protect lease data. Spreadsheets are often stored on local machines or shared via unsecured channels like email, making them highly vulnerable to breaches and unauthorized access.
Lease accounting software offers security features that protect sensitive information from potential threats. These platforms typically employ data encryption, ensuring that all information is secure both at rest and in transit. Multi-factor authentication (MFA) is another common feature, adding an extra layer of security by requiring users to verify their identity before accessing the system.
Audit trails are another critical security component offered by lease software. These tools track every change made within the system, recording who made it and when. This transparency not only strengthens data integrity but also simplifies audits by providing a clear record of all modifications.
Cost Savings of Transitioning to Lease Accounting Software
Although lease accounting software requires an upfront investment, the long-term cost savings can be substantial compared to relying on Excel. One of the most immediate savings comes from reduced audit costs. With clean, centralized data and automated compliance features, companies can minimize the back-and-forth with auditors, saving both time and money.
Lease accounting software is also more efficient than Excel and reduces the time finance teams spend on manual data entry and error correction. With automated workflows and real-time updates, teams can focus on strategic tasks rather than combing through spreadsheets to reconcile discrepancies.
Software can also help businesses identify areas where they’re overspending. For example, lease management tools often include analytics dashboards that highlight high-cost leases or inefficiencies in portfolio management. By identifying these opportunities, organizations can renegotiate leases, consolidate spaces, or make other adjustments to reduce expenses
Bricklin was right; it is time to find something better. As accounting standards and business practices evolve, business organizations need to upgrade their technology, as well—and the toolkit should include a dedicated accounting software program that is designed to accommodate accounting complexities and modifications while empowering companies to maintain compliance with accounting standards.
That is certainly true when it comes to proper lease management and accounting. We are seeing more and more organizations recognize the need for dedicated technology solutions to not only achieve, but maintain compliance with new standards and regulations. These solutions are bringing the industry into a new age, and it’s about time.
Want to see how Visual Lease’s platform works? Request a demo today.
