FASB lease accounting is changing the game not only for companies with leases, but also for the real estate brokers who help them to manage their property leases. Now, in addition to providing lease administration software to clients, brokers will be smart to consider providing lease accounting software solutions as well.
In fact, if they don’t, real estate service firms may find themselves losing clients.
Keep reading to learn why, and what to do about it.
Commercial real estate services firms typically provide day-to-day management of property leases for their clients. This service is a relatively small source of revenue. However, it serves as a foot in the door to get the more profitable business: the big transactions when companies acquire new space.
That’s why many commercial real estate brokers offer lease administration services. As part of that service, they include a software solution that can used by both the client and the service provider. It helps the service firm more efficiently manage leases, and it gives the client easy access to their lease information when they need it.
Now, the upcoming lease accounting changes are shifting that model. Real estate firms are in danger of losing their foot in the door if they don’t offer lease accounting software solutions as well.
The lease accounting changes coming from FASB and IFRS (in January 2019 for public firms, and a year later for private organizations) mean that companies need to track much more lease data than they did previously. Just about every lease must be brought onto accounting balance sheets.
So, companies need an automated way to centralize lease data and perform the necessary calculations. While the entry-level lease administration tools offered by real estate firms may handle the basic lease management functions, there’s no support for lease accounting. That means every company with more than a handful of leases is out there shopping for lease accounting software solutions.
The need for lease accounting software solutions creates a dilemma for large organizations that currently maintain lease data in a broker-owned lease administration tool.
Should they purchase one of the standalone lease accounting software solutions, and keep lease administration information in the existing system?
Or, should they move to one complete, integrated lease solution that does both?
As companies begin to investigate the technology infrastructure they will need to meet lease accounting objectives, it quickly becomes clear that the two-system approach is problematic at best.
For one thing, the lower-end lease administration tools that real estate service firms typically offer don’t integrate well with other systems. Until now that wasn’t a problem, because they didn’t need to.
Because of the new lease accounting rules, lease payments and other data will need to be regularly fed to general ledger systems. Since low-end lease admin tools can’t send data feeds, companies would be forced to use manual export/import processes.
Not only is that incredibly time consuming, but it’s expensive to set up. For the real estate firm, integration with lease accounting software solutions could cost more than they’re currently paying for their administration tool.
For the client, relying on manual data moves is risky: it’s prone to error. When it comes to accounting data for multi-million dollar real estate leases, it’s a risk many CFOs (and their audit firms) won’t even consider.
And there’s even more manual work involved in keeping lease data up to date in lease accounting software solutions. Property leases can and often do change during the course of the lease: payments change, options are executed, and space is added or removed. That means more manual movement of data, and more risk of mistakes, when you’re stuck with two systems.
Few large organizations are going to accept a difficult ongoing data management process like this. That’s why end-to-end lease administration and lease accounting software solutions are catching on.
When a large company decides to move to a combined solution, they face another problem with their real estate firm.
Finance executives may not want an outsourced real estate firm to have administrative access to their accounting data. That decision may be made based on lease accounting guidance from audit partners. And they certainly don’t want their real estate firm to OWN their lease accounting software solution.
For real estate services firms, the handwriting is on the wall: clients need to centralize all their lease data, and many will choose to take it back into their own hands. That could easily mean the real estate broker loses their foot in the door that ensures they get the bigger business associated with property leases.
Smart real estate service providers won’t just take this situation lying down and wait to lose customers.
The good news is, if you’re proactive you can get out in front of the problem and actually improve your relationship with your clients.
Our advice? Take these steps now:
1. Get educated about the upcoming FASB and IFRS lease accounting changes.
Learn about the challenges companies are facing and the data they need to collect. Understand lease accounting problems and solutions. Also, be able to speak to clients about the risks and opportunities related to FASB compliance, and how you’ll be stepping up your management practices accordingly.
Here are a few articles to get you started:
Lease Accounting Changes: The Silver Lining You’re Overlooking
Lease Portfolio Management: Policies & Procedures to Reduce Risk
Corporate Real Estate Strategies and the New Lease Accounting Standards
2. Learn about end-to-end lease administration and lease accounting software solutions.
You may be able to improve your position by offering technology that better meets your clients leasing needs instead of one that’s only half a solution.
We’re happy to show you Visual Lease and explain how we stack up to our competitors: REQUEST A DEMO.
3. Get a seat at the table and help clients make smart decisions.
The fact is, if your clients choose the right lease accounting software solutions, you can still keep their lease administration business.
Visual Lease, for example, has the security infrastructure in place to allow an outsourced firm to work with a client’s lease administration data, while controlling access to sensitive accounting data.
Don’t wait for your clients to come to you with this problem.
Find out who is involved in your clients’ FASB/IFRS implementation process and technology selection. Get involved and earn their trust by recommending smart lease accounting software solutions. If you do, you can stay in the game and keep your valued clients.
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