By Joel Hess on February 27, 2020 at 9:00 AM
How much does lease accounting software cost? As your firm examines the work involved with implementing and maintaining the new lease standard, you’re probably exploring software solution options and cost is always a concern. This blog examines the various pricing considerations that go into lease accounting software, to help you choose the best vendor for your firm’s and your clients’ needs.
But first: why lease accounting software?
The first question you may ask is why you need lease accounting software in the first place? Your clients have always tracked their leases in spreadsheets—does that have to change?
Unfortunately, the answer is yes. The new lease standard (ASC 842 / IFRS 16) makes the financial reporting of leases vastly more complex than before, and using spreadsheets to manage this area moving forward is extremely risky. With no built-in controls, calculations, or security, just imagine the nightmare of auditing those spreadsheets!
As an added bonus, providing lease accounting software to your clients is a significant value-add, offering your firm the ability to gain additional margin through pricing markups or pass-throughs.
Comparing lease accounting software pricing
There are several components to consider when evaluating lease accounting software vendors.
To start with, how is the base pricing configured? Is it a flat annual fee, a cost per user, or a cost per lease? (We recommend avoiding systems that charge per user, as that can become costly or can create a security risk as individuals share user profiles.)
Also consider these questions:
- Does it work for your clients currently (and the size of their lease portfolios)? Is it able to scale up as needed in the future?
- Is it an add-on to a larger accounting software system or is it standalone? (Tip: Look for standalone systems that specialize in lease accounting!)
- Does it do all of the things you need, including quantitative footnote calculations and proper handling of lease revisions?
Training & support
The available training and support can significantly impact the pricing of a software solution, as can usability itself. For instance, if the system is complicated and requires a lot of training to get started, that’s a lot of time (and dollars) invested. Additionally, look for features to further simplify the software, such as integrated tooltips, wizards, and on-demand training help.
When it comes to direct costs, find out if training and implementation have separate fees attached or if they are included. More importantly, understand the pricing model around ongoing service and support, as some companies will charge additional fees for certain tiers of customer service.
Base vs. add-ons
It’s easy to look at the base price of a software solution and get an unrealistic understanding of the total cost, so make sure to dig into any additional costs of each solution considered. As mentioned in the section above, ask about training, implementation, and customer service fees. While it’s fairly common to have an initial implementation cost, pay attention to that number as it may exceed the entire annual cost of the solution.
Also look closely at the functionality included in the base solution. Many software vendors sell software-as-a-service (SaaS) in tiers, with the lowest price subscription excluding premium features and functionality. When looking at the cost of a software option, make sure all the must-have features are included, such as journal entries and quantitative footnote disclosures.
Incentives or discounts
As with any purchase, ask if the vendor offers any pricing incentives or discounts. For instance, some lease accounting solution vendors have pricing incentives for CPA firms who bring new clients to the software.
Costs for your firm
Consider generally the costs for your firm with and without the software in question. Start with the opportunity cost. What would your costs be without software? Think of all the time it will take to create, update, maintain, and audit spreadsheets for each lease for each client. Any software solution is a time-saver compared to spreadsheets.
Then consider how a particular solution enables you to collaborate with your clients. Can you whitelabel it? Can your firm and your clients easily access the system? If so, you may consider passing costs through to your clients to offset the price of the software.
Other considerations for choosing a lease accounting software vendor
Pricing is important to think about when purchasing a new software solution, but it’s not the only critical consideration. Be sure to evaluate all these areas:
- Compliance with new lease standards: Can it accommodate all the requirements of ASC 842 and IFRS 16? Make sure it is not asset- or industry-specific.
- Financial reporting: The best lease accounting software solutions will offer both standard and custom reports, including quantitative calculations.
- Accuracy: This is obviously an essential concern. Ask whether the vendor has obtained a System and Organization Controls (SOC) audit examination and an Agreed-Upon Procedures (AUP) report to provide assurance around calculation accuracy.
- Audit functionality: Are there built-in audit trails and transparency into the system’s inputs and calculations?
- Independence: When working with clients via software, maintaining independence is critical, so be sure to ask what measures the vendor has taken to ensure this.
- Data access and security: Finally, explore data security closely before choosing a software vendor. Ask how data is inputted, how access is limited, whether single-sign-on is available, and what other security protocols are in place.