What is lease management?
In a corporate or non-profit organization, lease management means tracking and optimizing every aspect of your portfolio of leased assets. Properly tracking leases (not only real estate but also technology, vehicles, and even assets you control as part of service agreements) can help you significantly reduce the expenses associated with leasing. We’re not talking about small change here, but a chance to add millions to your bottom line.
Understanding Lease Management Tasks
Lease management requires a coordinated effort between the various teams performing these tasks:
- Lease negotiation and decision making, including lease structure, lease length, and lease-vs-buy options
- Lease tracking tasks, such as keeping track of upcoming renewals and exercising options, managing operating expenses, and updating lease data
- Lease accounting tasks, including payment of lease-related charges, recording journal entries, calculating asset and liability figures, generating reports, and performing remeasurement when leases change
How can you optimize your lease management strategy?
STEP 1: Centralize lease data and management tools
For teams to work together on lease tracking, the first step is to gather all lease data in a central repository that creates a single source of truth as well as an audit trail for all lease decisions and changes.
To set your teams up for effective lease management process flow, choose a lease management software platform (like Visual Lease) that allows you to centralize ALL data related to lease contracts and provides tools for automating lease tracking tasks and auditing expenses.
When everyone managing leased assets is using the same system to update lease data, schedule payments, and create accounting journal entries, everyone is always working with the most current data. And you eliminate data integrity problems that can occur when data is moved between systems.
STEP 2: Develop leasing policies
With centralized tracking tools and technology in place, you can now analyze your lease data and find out which leases are working well and which are costing you more money than you realized. Use those insights to determine how you want to standardize leasing decisions across the organization.
Best practice is for financial leaders to work with lease negotiators, administrators, and accountants to understand current practices and to establish cost-effective policies for leasing.
STEP 3: Create lease requisition and update processes
To ensure your accounting team always has accurate lease information to feed balance sheets and financial reports, it’s essential to establish standard practices for every group that’s involved in acquiring and maintaining leases, including processing new leases, documenting lease changes, and handling lease terminations.
Here’s what you might not know if you’re still in the process of consolidating lease data for FASB ASC 842 implementation: every time leases change, your accounting must be updated. So, it’s smart to minimize the burden on your accounting team by choosing lease accounting software that automates lease modification and re-measurement.
STEP 4: Set up controls
Adding leases to the balance sheet has increased the complexity of financial reporting. That means more oversight is needed to ensure accounting accuracy. Also, internal monitoring and process validation are required to ensure your policies and procedures are being followed and are driving better decisions and reduced expenses.
Your lease management software can aid that process in several important ways:
- Documenting the terms of every lease, calculating every payment, and alerting you if payments don’t match the lease terms
- Providing audit tools to find overpayments, late fees, and payments that shouldn’t have been made at all
- Allowing you to customize approvals required for lease administration and lease accounting tasks
- Providing an audit trail for all lease changes
Why is lease management important?
Lease management is critically important to ensure your business remains confident in sustaining lease accounting compliance.
Tackle lease tracking along with the lease accounting changes
Leases are ever-changing. Terms are constantly modified as businesses renegotiate their lease contracts, take on new spaces or terminate their leases.
Under the new lease accounting standards (ASC 842, IFRS 16 and GASB 87), each of these modifications must be accounted for.
Lease management software provides businesses with a single source of truth to easily view and access your leases.
What are the benefits of lease management?
Lease management offers several benefits for organizations that have a portfolio of leased assets. Here are some key advantages:
- Improved efficiency and time savings
- Enhanced visibility and control over lease portfolio
- Cost savings through optimized lease terms and space utilization
- Compliance with lease accounting standards (ASC 842, IFRS 16)
- Streamlined reporting and analytics for informed decision-making
- Better collaboration and communication among stakeholders
- Reduced risks of penalties and non-compliance
- Proactive management of lease renewals and important dates
- Minimized manual effort and administrative tasks
- Data-driven insights for strategic planning and portfolio optimization.
