Manual lease accounting might seem like a cost-saving strategy for businesses, but beneath the surface, it harbors hidden costs that can significantly impact a company’s financial health and operational efficiency. As businesses grow and their lease portfolios become more complex, the disadvantages of manual lease accounting become increasingly pronounced. This article delves into the hidden costs associated with manual lease accounting and explains why investing in lease accounting software is a prudent decision.

Hidden Costs of Manual Lease Accounting

Time Consumption
Manual lease accounting is inherently time-consuming. Accountants and financial analysts must painstakingly track lease agreements, calculate lease liabilities and ensure compliance with accounting standards such as ASC 842 and IFRS 16. This process involves sifting through mountains of paperwork and spreadsheets, leading to significant time expenditure. Time that could be spent on strategic financial planning and analysis is instead devoted to tedious data entry and verification.

Human Error
The risk of human error is omnipresent in manual accounting. Simple mistakes, such as misentered data or overlooked details in lease agreements, can lead to substantial financial discrepancies. These errors can result in inaccurate financial statements, regulatory non-compliance and potential financial penalties. Correcting these errors often requires extensive time and effort, further compounding the issue.

Compliance Risks
Lease accounting standards like ASC 842 and IFRS 16 have stringent compliance requirements. Manual accounting increases the likelihood of non-compliance due to the complexity of these standards. Non-compliance can lead to audits, financial restatements and damage to the company’s reputation. Staying updated with evolving standards is also challenging, requiring continuous training and adjustments to accounting practices.

Inefficiency in Lease Management
Manual lease accounting makes it difficult to manage and track leases efficiently. Companies with large lease portfolios struggle to maintain a centralized view of their lease obligations. This lack of visibility can lead to missed deadlines, overlooked lease renewals or terminations and suboptimal lease management decisions. Inefficient lease management can result in unnecessary expenses and lost opportunities for cost savings.

Opportunity Costs
The resources allocated to manual lease accounting could be better utilized in other value-adding activities. Accountants and financial analysts could focus on strategic tasks like financial forecasting, budgeting and performance analysis. The opportunity cost of manual lease accounting is significant, as it diverts valuable human resources from activities that could drive business growth and profitability.

Why Lease Accounting Software is the Answer

Automation and Efficiency
Lease accounting software automates many of the tasks associated with lease management. It can automatically calculate lease liabilities, generate journal entries and ensure compliance with accounting standards. This automation significantly reduces the time and effort required for lease accounting, allowing accountants to focus on more strategic activities.

Accuracy and Compliance
Lease accounting software minimizes the risk of human error by providing accurate calculations and maintaining up-to-date compliance with accounting standards. The software is designed to handle the complexities of lease accounting, ensuring that all financial reports are accurate and compliant. This reduces the risk of financial discrepancies and regulatory penalties.

Centralized Lease Management
Lease accounting software provides a centralized platform for managing all lease agreements. This centralized view allows companies to track lease obligations, manage renewals and terminations and make informed lease management decisions. Enhanced visibility into lease portfolios leads to better decision-making and cost savings.

Scalability
As businesses grow, their lease portfolios become more complex. Lease accounting software is scalable and can handle an increasing number of leases without additional manual effort. This scalability ensures that companies can continue to manage their leases efficiently as they expand.

Cost Savings
While there is an initial investment in lease accounting software, the long-term cost savings are substantial. The reduction in time spent on manual tasks, the minimization of errors, and the improved lease management lead to significant financial benefits. The software pays for itself through increased efficiency and reduced risk.

In conclusion, the hidden costs of manual lease accounting are substantial and can hinder a company’s growth and profitability. Investing in lease accounting software, such as the one provided by Yardi Corom, is a strategic decision that enhances accuracy, compliance and efficiency, ultimately driving business success.

Yardi Corom is a comprehensive and user-friendly accounting, lease and workplace management solution for CRE tenants. Our cloud-based software solution increases efficiency and accuracy across your entire lease portfolio: manage leases and subleases, track key lease data, centralize transactions and become FASB/GASB/IFRS compliant. To learn more, you can visit our website or schedule a meeting with our team.