By Mike Hammerslag
The balance sheet is growing under the new financial reporting standard issued by FASB, which asks that all leases with terms of more than 12 months are recognized as assets and liabilities.
As part of your organization’s transition to the regulations, you must collect all data on each of your leases, and to do that, you will need to have a complete inventory of your company’s existing leases.
Whether your organization is just starting to collect leases and lease data – or is wrapping up the process – read on to ensure you don’t overlook these four departments that may be hanging on to leases of their own.
The real estate lease often contains the basic and main signage rights for a location. However, post-lease commencement, the Marketing Department is often responsible for the signage on the building, and the pole sign at the entrance to the property.
Marketing may also create and control promotional campaigns which can involve signage on other buildings – from banners to billboards. Therefore, these marketing programs must be reviewed for the likelihood of leases.
Human Resources Department
While Fleet Operations may handle 90% or even 99% of the company’s leased “wheeled” assets, it is not uncommon for some employees to have compensation packages that include access to leased assets, or TRAC leases. The most common example of a leased “wheeled” incentive is the company car. Whether included as part of a CEO’s compensation or simply a part of the District Managers employment compensation package, these leases exist and are potentially in the company’s name, not the employees.
Human Resources is an important area to review when it comes to leased assets included in employment compensation structures from the C-Suite down. Subsequently, it may be necessary to restructure certain employee compensation offers such that no employee, or perhaps only C-Suite employees, have leased assets included in their compensation.
Another consideration for your HR department is how they manage the physical movement of employees or oversee an internship program that includes paying and housing interns. There might be leases involved with these activities.
Additionally, companies may have employees who gather at a central location, such as the corporate headquarters. Some companies have found that guaranteeing, reserving, blocking or even owning hotels, hotel rooms, or apartments can generate a cost savings to the company; and a lease to/for the company.
This type of transaction should be uncovered and evaluated for either staying the course or creating a better way to save the company money with a less impactful result on the balance sheet.
Real Estate Department
A quick trip through the real estate department should cover your bases here. Historically, they are the ones who have had a centralized process for leasing. But it is important not just to think of yourself as a lessee, but you must also consider all your lessor leasing positions. These leases are when you act as the landlord, deriving extra income from a facility by leasing or re-leasing an unused portion.
Whether it’s a group of cell tower transponders sitting on the corner of your building, or you decided you no longer need a location for a period-of-time and have leased it to another company for their use, these lessor leases now need to be quantified and tracked on the balance sheet.
Where did all that amazing art hanging on the walls come from? It may be on the company’s fixed asset list, or perhaps on loan. But if it’s leased, you’ll need to know it. What about the gym equipment? No one likes to ride a 10-year-old stationary bike, although leasing it over three years, purchasing it for a $1 at the end of the lease and then throwing it out two years later might be a more sensible approach to acquisition and maintenance. Check with the Chief Administrative Officer or the Facilities Department for their insight on whether these types of items were leased.
Furniture, fixtures, and equipment could very well be leased at any and every location. Did you buy that drink dispensing machine or lease it? Purchased your kitchen equipment, or is it a lease? Purchased your mannequins? And let’s not forget that if your company is contracted with a landscaper, and in that contract, it states they will only use a specific piece of equipment to cut the greens on the corporate golf course, then yes, you have another lease.
To ensure that you can accurately and efficiently gather these leases, we recommend creating a cross-functional team. And be sure to include someone who can combine operational review and execution with an eye towards your capital structure.