The tables have turned when it comes to lease accounting software.
It’s standard business practice that vendors fight to win the business of potential clients. But in the present market, the opposite is becoming more and more true. Lease accounting software companies are in more demand than ever.
And it’s all due to the new lease accounting standards.
Many private companies have underestimated the time and resources it takes to implement FASB ASC 842 and its sister regulations, IFRS 16 and GASB 87. In fact, only 9% of companies are worried about finding a technology vendor to handle the changes.
And that means when they finally do start the vetting process, there will be a run on the market.
Private companies looking to implement the new lease accounting standards in 2021 should choose now or risk being waitlisted by lease accounting software providers.
Get Out Your Calculator
If you do the calculations, it will soon become clear the market is saturated with companies who need lease accounting compliance software, but that it’s slim pickings for providers.
Truth be told,there are only about 20 reliable U.S. companies that provide lease accounting software.
All the private and public companies in the country that are required to comply will be using one of those vendors. There are 5.9 million private companies alone, and approximately 2.2 million of those are mid-to-enterprise size.
Even if only 5% need to be compliant with FASB ASC 842 by the beginning of 2021, that’s 110,000 companies that need implementation help in less than a year’s time.
110,000 companies. 20 lease accounting software providers.
That boils down to 5,500 companies per vendor that need to be onboarded and compliant in less than 12 months time.
The stark reality is, those who don’t act first to secure their spots on a lease accounting software’s client shortlist probably won’t meet the compliance deadline.
How to Choose Lease Accounting Software
For companies who’ve prioritized finding a lease accounting software provider as soon as possible and who have time on their sides, there are a few ways to know if a vendor is the right fit for your company’s needs.
#1 Ask Questions
Don’t make the mistake of allowing the vendor to do all the talking. Ask pertinent questions to dig deeper. This will tell you if the company knows its stuff or is full of fluff.
Mike Handley from CFGI warns you to be wary of providers who haven’t been around a long time.
“A lot of vendors have scrambled to put something together in order to offer their services to potential clients for the new lease accounting standards. Once you dig down another level, it’s easy to see that they wouldn’t be able to provide all the requirements from a compliance perspective.”
We recommend asking questions like this:
- How much time will implementation take?
Beware of answers that promise a really short timeline. It’s a sign the vendor is simply trying to sell you a product rather than be a true implementation partner.
- How do you handle day-two reporting? What functions are available and are they automated?
- What ERP systems do you integrate with?
- Are you compliant with FASB ASC 842, as well as past accounting standards?
Even if the vendor needs to turn to a teammate for an answer, responses should be swift, thorough, and accurate. You’ll need the same kind of approach when you hit the challenges of implementation.
#2 User-Friendly UI
Make sure you can try before you buy. In other words, take a thorough tour of the software. Whatever stakeholders are involved in implementation will need to be able to access and understand the data inside the software.
The nature of lease accounting software is usually full of complexity. However, you should still be able to understand how it works at a basic level.
Patrick Dwyer, Technical Accounting Manager at Element Solutions, Inc. stated it was important for his company to choose lease accounting software that was designed in a way that made it highly configurable without any additional cost or programming.
“When we went to implement the software, we were able to get the look and feel of our company’s footprint quickly.”
And don’t forget that a user-friendly UI is just the start. You also want your vendor to have a team of experts to support your onboarding and implementation efforts every step of the way.
“We wanted a solid group of people,” said Joshua Reisz, Manager of Global Financial Reporting at Kennametal, Inc. “Although the software is what we’re buying as a product, so much goes into it from a service standpoint.”
A user-friendly support team will be knowledgeable, available, and helpful.
#3 Price Isn’t Everything
Most companies base their lease accounting software decision on price.
While you can’t help what your budget is, it’s worth considering the enormous time and money savings you would gain by using lease accounting software instead of Excel. Most lease accounting software solutions will work with you on pricing plans. You don’t have to break the bank, but it’s best to choose software that will get things right the first time.
In fact, Joshua Reisz from Kennametal, Inc. emphasizes how important it is to find the right partner: “We were working with a different partner for a different type of solution. It claimed one of its offerings was lease accounting. We were under the impression it would be able to fulfill that. However, it was not to the level we were needing.”
As a result of this poor vendor choice and subsequent rush to find a new provider, Joshua’s team had to squeeze in a tighter - and more challenging - turnaround time for implementation.
Making the Shortlist
If you’re a company who ends up taking the risky route of waiting to start implementation and you need to get on a lease accounting provider’s shortlist, there are a few things you can do.
#1 Create an Action Plan
You want to work with someone who has their ducks in a row. And so does the company you’ll be partnering with, especially if you’re late to the game. That means creating an action plan to bring with you to the demo.
The action plan should involve all stakeholders.
And those team members should be well versed about the importance of the new lease accounting standards and how lease accounting software is going to make their lives easier.
“We worked with all of our departments to get their support to commit to do our vendor reviews and due diligence,” said Patrick Dwyer from Element Solutions, Inc. “The key stakeholders attended those sessions. We scored all the vendors together, so we had consensus from the beginning.”
Finally, have a solid grasp about what your company’s specific software requirements are in order to meet the new accounting standards.
#2 Understand your Lease Population
One of your lease accounting software requirements will be wrapping your arms around your entire population of leases.
- How many leases you have
- Where they’re stored and managed (offline or online)
- Location (domestic or international)
- Who manages your leases
- The breakdown of lease type (real estate, equipment, vehicle, embedded)
Kennametal, Inc. began the process of gathering information and understanding what was needed over 18 months before its compliance deadline. The company distributed surveys across its offices in order to identify where its leases existed and the nature of those leases.
#3 Set a Realistic Timeline
Getting in line first doesn’t guarantee your implementation will be short. And getting in line later down the road definitely stretches the timeline.
A realistic timeline is 6 months minimum.
This includes the entire project: Onboarding of a small lease portfolio, training, and set up of controls and processes.
You’ll also need to set an internal timeline of when you’d like to go to contract with a vendor of choice. Getting stakeholders on board and excited about the project early will keep you on track for staying on time with vendor choice and overall implementation.
Conclusion: Starting Now Is the Best Option
While the majority of public companies - 72% - implemented a new lease accounting system or used an existing one, only 51% of private companies plan to do the same for FASB ASC 842.
Most private companies are assuming they can get by without a lease accounting software.
And while technically anything is possible, there are inherent risks in opting not to use lease accounting software.
It’s no longer a set-it-and-forget-it standard, says Mike Handley from CFGI.
You’re going to have to monitor for reassessment triggers, modifications, and - of course - new leases. And there will be more to update on a go-forward basis.
If you’re using spreadsheets, you’re going to have to rely on formulas and linking throughout spreadsheets.
After helping hundreds of companies implement the new lease accounting standards, we’re familiar with how overwhelming these changes can be for private companies with small lease portfolios and even smaller teams. That’s why we have easy-to-use compliance software, an expert support team, and flexible pricing plans.