Until recently, many businesses around the world did not focus on their assets and resources rather than paying. A lease is considered only as a transaction cost, and managing the lease service and issues is not a priority. But today, lease management has become an important factor affecting financial reports and results. By 2027, the rental management market is expected to exceed $6,252.3 million.
What is a lease management and why it is important?
In a non-profit or business, lease management means tracking and optimizing every aspect of a company’s portfolio of lease assets. Effective management of leasing, not only of real estate but also of vehicles, technology, and even assets controlled under service contracts, can help the organization reduce leasing expenses. A coordinated effort among many lease management teams is required to perform these tasks:
Lease negotiation and decision-making including the lease term, housing structure, and lease purchase options
Lease management services: review renewals and exercise options, update lease data, and manage costs
Leasing services, such as paying rent-related fees, calculating debt and asset counts, filing invoices, creating reports, and conducting inspections when leases change.
Importance of lease management:
Previously, under the old lease accounting rules, leases had little impact on the income statement and were not included on the balance sheet. But today, under new lease accounting standards, businesses or nonprofits must record lease payments and lease-related equipment on their balance sheets.
So adding up the value of the entire loan portfolio can be very variable and have a significant impact on financial reporting results. It also means that the risks associated with poor lease management and decisions are heightened. As a result, finance managers must monitor and control leasing decisions, spending, and organizational practices.
Lease management process:
Traditionally, lease, financing, and accounting negotiations took place in silos with little or no coordination between the parties involved in each function. This has led to scattered data, inconsistent lease decisions, and often poor lease rates due to the inability to analyze and organize records. Effective lease management includes working collaboratively and centrally accessing lease management tools and lease data.
Lease data and management tools:
The first step for teams to work together effectively in lease management is to collect all lease data in a central repository, which creates a single source of truth and an analytical approach for all lease changes and decisions.
To prepare the team for effective lease management, the choice of a software platform such as Visual Lease will allow the company to organize all the data related to the lease agreement. In addition, it will provide tools to automate research expenses and rental management services.
When all members of the lending team use the same system to update payment systems, and lending data and create accounting records, everyone in the group is always working with the most up-to-date data.
Develop a lease policy:
With centralized lease management technology and resources available, an organization can analyze current lease data and identify which leases are performing well and which are costing the organization more than it thinks. Using this information can help determine how the organization wants to structure lending decisions.
For finance managers, it’s best to work with loan managers, negotiators, and accountants to understand current trends and establish cost-effective lending strategies.
Create rental requests and upgrade systems:
To ensure that an accounting company always has accurate lease information to provide financial reports and balance sheets, it is necessary to establish standard procedures for each group involved in the acquisition and maintenance of a lease. This also includes arranging new leases, managing lease breaks, and drafting lease amendments.
Whenever a lease changes, the company’s loan records must be updated. Choosing software that automates the assessment and adjustment of leases is a smart way to reduce the workload of the accounting team.
Customize the controls:
The complexity of the financial statements has increased due to the addition of loans to the balance sheet. This means that additional care is required to ensure the accuracy of the financial records. In addition, system approval and internal monitoring are required to ensure compliance with all loan management procedures and policies.
The lease management system works well and benefits businesses and organizations. Organizations should use this opportunity to review and revise rental management practices and policies where they work for rental compliance.