Former Accountant, Lease Administration and Accounting expert and Lucernex Director of Client Services, Jim Short, discusses the high cost of waiting to upgrade your Lease Administration system.
Changes to FASB / GAAP rules are eminent. Little has changed in the last few reviews and the rules are now out for final comment. It is clear the changes reflect an enormous shift in how leaseholders will account for their leases. The biggest unanswered question seems to be whether they will go into effect in 2013 or 2014.
What we hear from retailers is that they plan to wait until the final rules are adopted before making any changes. There are a number of reasons why waiting is a very dangerous choice.
Risk 1 – The cost restatement
If the rules go into effect in 2013, public companies will have to report back to the beginning of fiscal year 2011 utilizing the new rules. That means the lease decisions you are making this January will impact the cost of restatement in 2013. Instead if you included a step in your process that tracked your leases using the old rules and the new rules, you might not have to restate. I spoke to one former CEO of a very large public retailer who said the cost of restating 250-300 leases under the new FASB rules could be several hundred thousand dollars to several millions; that excludes the uncertain impact on the stock value.
Risk 2 – Lost opportunity
This is a continuation of Risk 1. In our early analysis of the rules change, there appears to be lease structures that make the new rules less expensive than the old ones. Therefore it may cost less to restate comparing old vs. new, but you may be able to restructure your leases in a way that improves your bottom line by taking advantage of the new rules.
Risk 3 – A sellers market
Knowing that most companies are waiting to select new software and adapt their processes, once the new rules go into effect the software market will rapidly become a sellers market. There are a limited number of proven lease administration and rent accounting software vendors, especially for retail, so the wait time to implement may be long. You may pick the best product for your organization only to find out that you have to wait several months to implement. Or worse, you may pick whoever can do it sooner and settle for an inferior product. This is the most important system in the real estate group. You are likely keep it for at least 5 years or more. Think back to 1999 and the rush to implement Y2K compatible systems. Your organization could be in the same situation if wait too long to make a decision.
Other things to consider
There are other factors that should compel companies to update their systems and processes now.
Legacy Lease Admin maintenance increases
Due to a recent ownership changes at the former market leader in lease administration and rent accounting software for retailers, annual maintenance increases of 20% to 100% have become commonplace. Why pay 20% to 100% more for your old system that may no longer be supported? Instead, apply those funds toward a new system, which may not be much more than your increased maintenance payment. You are going to have to implement a new system soon, why pay double for your old system for another year or two when you can invest that same amount and actually receive an ROI?
Software discounts available now – may not be next year
Several software vendors, Lucernex included, have special legacy lease software replacement deals, and other special offers in place this year. Once the FASB rules are approved and demand quickly outpaces supply, those deals may be gone.
Lucernex has already upgraded our core financial engine to support the new lease accounting rules. We even have new vs. old reporting in place to allow clients to make optimal lease decisions in 2011 and avoid restatement. We also have a legacy lease replacement program in place until the end of the year that provides free data conversion from several of the existing legacy lease administration solutions. We have a modern lease administration and rent accounting system, Lx Contracts, designed by the father of lease administration solutions, Ken Brown, who created the most popular market product, SLIM. Lx Contracts meets all OSCRE standards, is 100% Web-based and SaaS or Cloud delivered. It is not only the most user friendly and flexible system on the market; it is also one of the least expensive.
We also have the market leading corporate lease analysis software, Lx LseMod Corporate.