Top 5 Features to Look for in Lease Accounting Software for Small to Mid-Sized Businesses

In today’s business landscape, small to mid-sized businesses (SMBs) face numerous challenges, particularly when it comes to managing financial data. One area that has become increasingly complex due to new accounting standards is lease management. With the introduction of ASC 842 (under U.S. GAAP) and IFRS 16 (international standards), businesses must account for leases on their balance sheets, which involves tracking both operating and finance leases, calculating right-of-use (ROU) assets, and managing lease liabilities. For SMBs, navigating these changes while maintaining compliance and accuracy can be a daunting task.

Lease accounting software can simplify this process by automating and streamlining lease tracking, reporting, and compliance. However, with so many options available, selecting the right software for your business requires careful consideration.

1. User-Friendly Interface and Ease of Use

For small to mid-sized businesses, simplicity is key. Unlike large enterprises that have dedicated accounting teams or software specialists, SMBs often need software that is intuitive and easy to navigate. Lease accounting software should have a user-friendly interface that allows accounting staff (or even non-accountants) to quickly input, track, and manage lease data without requiring in-depth knowledge of accounting principles.

For those managing property leases through an SMSF, understanding comprehensive guide to SMSF setup requirements is equally important to ensure lease accounting software aligns with compliance obligations.

A clean, organized dashboard is essential for tracking leases at a glance. The interface should enable users to view lease details, such as lease terms, payment schedules, and any adjustments or updates to the lease. Look for software with clear navigation menus, easily accessible help resources, and customizable features that allow users to tailor the system to their specific needs.

Features to look for:

• Drag-and-drop functionality for ease of entry
• Intuitive, well-organized dashboards
• Interactive help guides or support chat for quick troubleshooting

2. Automated Lease Calculations and Journal Entries

One of the most time-consuming and error-prone tasks in lease accounting is ensuring that lease payments, liabilities, and assets are correctly calculated and reflected in the financial statements. Lease accounting software should automate this process, ensuring accuracy while saving your accounting team significant time.

The software should automatically generate the right-of-use (ROU) assets and lease liabilities based on the lease data entered, and accurately calculate the depreciation of ROU assets and interest on lease liabilities. It should also create journal entries for leases, eliminating the need for manual calculations and reducing the risk of errors.

Additionally, the software should be able to handle complex lease scenarios, including:

• Variable lease payments
• Lease extensions or renewals
• Modifications to lease terms
• Impairments or re-measurements

By automating these calculations, lease accounting software reduces the administrative burden and helps ensure compliance with ASC 842 and IFRS 16 standards.

Features to look for:

• Automated calculations of lease liabilities and ROU assets
• Automated journal entry generation for financial reporting
• Support for complex lease scenarios (e.g., variable payments, modifications)

3. Integration with Existing Accounting Systems and ERPs

Small to mid-sized businesses often use accounting systems or enterprise resource planning (ERP) software to manage their overall financial operations. Therefore, one of the most important features to look for in lease accounting software is its ability to seamlessly integrate with your existing accounting system or ERP platform.

Integration ensures that lease data flows smoothly between systems, reducing the risk of data duplication or errors. For example, when lease payments are made, the software should automatically update your general ledger in your ERP system. Additionally, it should synchronize lease data between both systems, making reporting and auditing more efficient.

Whether you use QuickBooks, Xero, Microsoft Dynamics, or another accounting system, look for lease accounting software that offers pre-built integrations or has an open API that allows for custom connections.

Features to look for:

• Integration with popular accounting systems (e.g., QuickBooks, Xero)
• Real-time data sync between accounting systems and lease software
• Pre-built connectors or API support for custom integrations

4. Comprehensive Reporting and Analytics

Effective lease management doesn’t stop with accurate calculations; SMBs also need insightful, real-time reports to understand their financial standing and make informed decisions. Lease accounting software should include a robust reporting and analytics feature that offers customized reports on lease obligations, asset depreciation, lease costs, and more.

The software should allow users to generate both high-level summaries and detailed reports, such as:

• Lease liability schedules
• Right-of-use asset amortization schedules
• Lease payment breakdowns
• Impact of leases on financial ratios and metrics (e.g., EBITDA)

These reports are essential for meeting compliance requirements and for auditing purposes. Additionally, having access to interactive dashboards with real-time insights into your lease portfolio can help businesses track performance, optimize lease agreements, and plan for the future.

Features to look for:

• Pre-configured reports for ASC 842 and IFRS 16 compliance
• Customizable reports and dashboards
• Real-time analytics and financial forecasting capabilities
• Interactive visualizations for easy data interpretation

5. Scalability and Flexibility

As your business grows, so will your lease portfolio. The lease accounting software you choose should be scalable to accommodate an increasing number of leases without compromising performance. It should also be flexible enough to handle various types of leases, including operating leases, finance leases, and subleases.

Scalability and flexibility are particularly important for SMBs that may not have a fixed number of leases. Your software should be able to adjust to varying lease volumes, deal with new lease structures, and adapt to changing business requirements without requiring a major system overhaul.

Furthermore, the software should support multi-currency and multi-country operations if your business has international leases or multiple locations. This ensures that your lease accounting practices remain consistent across different regions and currencies, simplifying global lease management and reporting.

Features to look for:

• Scalable to handle increasing lease volumes
• Support for multiple lease types (operating, finance, subleases)
• Multi-currency and multi-country functionality
• Flexibility to adapt to new lease accounting standards or business needs

Conclusion

Selecting the right lease accounting software is a critical decision for small to mid-sized businesses looking to streamline their lease management and ensure compliance with ASC 842 and IFRS 16 standards. By focusing on these five essential features—user-friendliness, automated calculations and journal entries, integration with existing systems, comprehensive reporting, and scalability—you can choose a solution that not only meets your current needs but also supports your future growth.

Investing in the right lease accounting software will save your business time, reduce errors, ensure compliance, and provide actionable insights into your lease portfolio. With the right solution in place, you’ll be well-equipped to navigate the complexities of modern lease accounting with confidence.