Lease accounting is the process of understanding the impact of your companies leasing activities on its finances and cash flow. Though this sounds simple, it is a much more complicated process in reality and has put many companies under the FASB and SEC radar quite easily. If you do the lease accounting work in a hurry just to somehow close your books at the year-end, you are bound to set up your business for much bigger problems with the federal bodies. Once that happens, your whole portfolio and all your assets, finances and business process overview will be questioned and looked into. It is better you do not let this become a roadblock sooner rather than later.  

Read this detailed article to learn all about the regular nightmares of lease accounting and how you can solve them by replanning your management strategy and leadership.  

Transitioning to and keeping up with ASC 842, IFRS 16, or GASB 87 standards is a humongous task, one that can not happen without a professional lease expert. If you are a real estate business owner or property manager, you probably already have nightmares about working with these new lease accounting standards. From understanding the complicated terms to implementing them on time, the journey is tedious. To make the journey more pleasing, closing all your balance sheets on time and not letting compliance be such a scary word, you need to hire a professional lease expert. This is why Deloitte research data says that compiling lease data and analysing them will be the most crucial part of lease accounting, and as real estate business owners, you need to take that into account.  

Though there might be many problems in lease accounting that are particular to your business alone. But there are many lease accounting problems that become a nightmare for most real estate businesses; here is a closer look at the biggest and most common ones to give you a head start.  

At the end of 2021, the Financial Accounting Standard Board (FASB) rolled out new rules for lease accounting. There have been many new additions that any property manager needs to notice. A proper lease accounting process can help your real estate business keep track of financial impacts on the company due to lease works. Since leases are filled with complicated legal matters and are full of cumbersome paperwork, they can become an enormous burden for a business owner. This tedious process ends up with a lot of mistakes that businesses commit that can end up in major problems in the future.  

Read the full blog to know what these mistakes are and how you can avoid them. 

Mistakes in your lease accounting work disrupt your company's cash flow, burden the finance departments and shake up the regular workflow of the business. Most companies and real estate property managers depend on inexperienced in-house reassigned from other departments to somehow get the job done. This can lead to a lot of data inaccuracy, fraud, lack of budgeting and forecasting, and inability to keep up with compliances. You need to work with experts to solve these issues and avoid long-drawn legal battles with the FASB.  

Companies have been battling with lease administration and accounting work for quite some time now. We have handled this work for clients for a while now. Here are a few of the top mistakes and oversights we saw through years of experience. Keep track of these to avoid them and benefit your business.  

If you do not have a proper data collection system in your real estate business, that is a major hindrance. Having gaps in data order and not getting your lease abstraction on time can make you fall short on lease accounting work and affect your finances. You need to start working with a third-party lease abstraction services provider to get through the process on time.  

If you do not follow a company standard guideline for your lease agreements then your lease accounting work will suffer. As a real estate property manager and owner, you can not indulge in drawing up different kinds of lease agreements and rules for similar tenants. Not only does it puts a lot of burden on the financing department to keep track it also creates a bad brand image with the tenants.  

If you do not put down your CAM rules, regulations, and charges in the lease agreement, lease accounting can never be completely worked out. CAM reconciliation is a crucial step of the whole process to close your books on time and tie up all loose ends. You can not take your tenants by surprise by adding up new CAM charges while doing the lease accounting work, you need to put them in place from the beginning of the deal. This will help all stakeholders be on the same page and get work done on time. 

The FASB rules and guidelines are ever-changing. As a property manager, you may not have the expertise to understand the legal jargon inside the fine print of these rules. But these rules need to be complied with during all lease accounting work to avoid any penalties and legal fines. Staying up to date with these and modifying your lease accordingly is crucial for growth and keeping your business functions stable.  

Only an expert in lease accounting is always updated about FASB rule changes, and you need to hire one to make the job seamless. Following a DIY process will open your company might save some money up to a lot of risks, which can end up in a lot more monetary loss. If you do not want to invest in employing the experts full-time, you can always go for outsourced services with third-party providers. You need to audit your lease and check for any faulty areas, and you also need financial service experts to check if all the terms of the lease are benefitting all stakeholders. 

Keeping up with compliances is never a one-time thing. You need to set up a streamlined process to handle the situation. This will help you get proper data insights, stay on top of industry developments and news and avoid all blocks. Lease data management proves to be cost-effective and gives companies a lot of valuable information about their financial conditions and current happenings. It will also help you optimize your lease payments and never be on the wrong side of compliances.  

Before you reach lease accounting, you need to lease extraction work to be done in order to get scalable and comprehensible data to work with. This can be done with the help of the right technology selection in project management. The right software can fasten your workflow by processing all the data in no time and helps in keeping up with all deadlines. Completely depending on manual labor to get the job done can be harmful to your ROI in the long run. 

Property management is a demanding job. Unlike a 9 to 5 job, managing properties requires you to work at your client’s convenience. On top of that, property managers also need to handle marketing, legal work, maintenance, and other tasks. Looks challenging? You can overcome most of your business obstacles through outsourcing. 

Apart from managing your time better, outsourcing can also help your business grow. Wondering how? We have compiled the top ways outsourcing can improve a real estate business. Read on!