The uncertain economic outlook and potential for continued slow growth has sent finance and property teams scrambling to find ways to reduce risk profiles.
One solution gaining traction is switching the focus of procurement away from purchasing fixed assets to leasing arrangements that avoid large, upfront payments and have built-in flexibility. These can be for buildings, fleets of cars, machinery, equipment and industrial vehicles.
Opting to lease, however, requires assessments to balance the certainty of long-term agreements against the agility of those running over a shorter term.
“Leasing can certainly facilitate more strenuous cost-cutting, but only if your leasing strategies are properly implemented,” says Andrew Paykel, CEO of lease accounting software provider Nomos One. “That becomes even more critical if the economy deteriorates further and you need to find ways to effectively manage cash flow.”
He cautions that relying on traditional methods is an unnecessary risk, especially when automated lease accounting has so many advantages.
Visibility through technology
Excel spreadsheets, the mainstay of accounting practices for decades, are fast drifting out of fashion as finance professionals seek more efficient and flexible ways to store data that will help futureproof their operations. Management consultants McKinsey identified centralisation as one of the key traits of a highly efficient company, and it’s certainly true of managing multiple leases.
“Automation creates one cloud-based source of truth, which is essential to gain visibility across a business,” says Paykel. “Without it, rent reviews and expiry dates can easily slip through the cracks.
“Property and finance teams need to access the most up-to-date information around their lease portfolio in a form that’s digestible and tailored to their needs.”
Details such as renewal dates, payment amounts and lease clauses need to be accessible and accurate at any time, so it’s simply unworkable if they’re stored on a desktop or in multiple silos.
“Automation unlocks substantial cost savings by implementing and maintaining processes like auditing and onboarding to reduce the amount of time they take,” says Paykel. “Lease accounting is tricky at the best of times, but becomes even more complicated during periods of growth or stress. Without good leasing software, it’s easy for avoidable costs to creep up.”
Reporting and compliance are two of the most crucial elements of lease accounting, and both require regular reviews of all the relevant data. “It can be an onerous task to manage if you’re relying on Excel,” warns Paykel, “especially when it comes to larger lease portfolios. Innovation is a no-brainer.”
Indeed, innovative firms deliver higher profits and stock returns, according to a large-scale study by the University of Sydney, itself a Nomos One customer. Leasing software boosts agility and performance, as well as improving compliance.
“Did I mention that lease accounting is complex?” smiles Paykel. “It turns out that many things require consideration in every single calculation, with frequent ongoing reassessments. That’s why our software features a daily calculation report that you can download for each agreement. It drills down into lease calculations at any point, so it’s a very powerful tool.”
Find out more
Nomos One is a leading provider of lease accounting software across Australia and New Zealand. Visit nomosone.com to book a free demo.