Making a Business Case
Beyond Compliance, Seek out Return on Investment
Most companies won’t bother making a business case to support the new lease accounting standards. They will simply develop a budget for executive approval then begin implementing. The benefits of avoiding a financial restatement and material weakness (typically a 0.86% loss in market capitalization) are usually justification enough for making an investment. However, skipping the ROI analysis could be a mistake for many organizations as there is a massive savings opportunity awaiting those who can re-engineer their real estate and equipment leasing processes to function optimally.
In this article, we will focus on the cost savings that can be achieved through optimizing your equipment leasing program which at most companies is more problematic than real estate. Many of the systems, controls, policies, and processes related to equipment leasing will need to be re-engineered to comply with the new lease accounting standards. If you are going to the trouble of redesigning your leasing processes, why not expend a little bit more effort to optimize them as well? With 20% more effort, you can do much more than comply with the new FASB rules, you can save millions by making lower payments to vendors, increasing employee productivity, and making smarter decisions.
Complexity of Your Equipment Leasing Program
Below are seventeen potential savings opportunities for companies that can be realized through optimizing equipment leases:
How many dollars could you prevent flowing out the door to vendors if you:
- Minimized unplanned and unwanted evergreen fees
- Competitively bid out equipment financing to a market of diverse lessors
- Minimized interim rent payments for equipment leases
How much more productive would your employees be if they could automate processes with the click of a button instead of conducting them manually? Consider:
- Classifying leases with the new and current accounting standards
- Researching issues and preparing the necessary documentation for audits
- Reconciling discrepancies in accounting for quarterly and annual financial disclosures
- Conducting lease versus buy analyses for new equipment acquisition
- Generating and distributing RFPs for equipment financing
- Recruiting new leasing companies to bid on equipment financing opportunities
- Comparing and ranking the responses to RFPs for equipment leases
- Reducing contract negotiation time by standardizing agreements with leasing companies
- Reporting on equipment leasing KPIs for each business unit
- Tracking down documentation, emails, and notes for equipment leases
How much money would you save by making smarter decisions in your negotiations at the start and end of term by:
- Always evaluating lease options when purchasing equipment to optimize your CAPEX budget
- Optimally structuring leasing contracts to have more favorable buyout, return, and renewal options.
- Optimally negotiating renewal terms for equipment leases and buyouts at end of term.
- Consolidating smaller ticket leases into an aggregated financing approach with lease lines.
In our experience, the biggest and fastest savings opportunities come from two areas. Read more about how to calculate your savings from these areas:
1) Minimizing evergreen fees
2) Competitively sourcing equipment financing