Apple Growth Partners

Got Leases? Get Ready.

If you thought it was time to relax as summer winds down, guess again. It’s time for privately held businesses to get ready for the new accounting guidance for leases. 

A lease liability for all future lease payments will be recorded for all leases under the new lease accounting guidance, even operating leases for buildings, cars, equipment – any leased asset. At its highest level, under the new lease accounting standards, lessees should expect to “capitalize” many leases that they have historically classified as “operating leases.”     

Why now? The best preparation for the future is a well-lived present. 

  • The required implementation date was pushed back for private companies to fiscal years beginning after December 15, 2021, or calendar year 2022. Which is right around the corner and will be here before we know it. 
  • The new standard is going to change the complexion of your financial statements and financial ratios. Best to plan ahead and understand the impact before 2022, so that you can anticipate those impacts and begin discussions with your financial institutions on the effect this is going to have on financial covenants.  
  • This is a big change for most companies, with a big impact on your financial statements. This is the time to calculate and project the impact and talk to your banker.  

What now? 

  • Identify your internal team members responsible, establish responsibilities, and create a timeline to implement this standard. Setting such framework improves accountability and gives everyone visibility to the end goal and finish line.  
  • Gather your lease documentation. Take an inventory of your leases. Do it now, while you’re writing the checks and paying the bills. Cars, copiers, buildings, land. Make a list, check it twice.  
  • Getting ready to buy or lease something new? Call us before you sign. Already signed a new lease? Save a copy and send it to us.   
  • Summarize the key terms of your existing leases: 
    • What are you leasing? Describe the item or property. 
    • Who are you leasing it from, and is the lessor related to you?  
    • How much is the payment, and what is the frequency? Monthly? 
    • How long is the lease term? 
    • What happens at end of lease term – is there a $1.00 buyout option? A FMV purchase option? Or does custody simply revert to the lessor? 
    • Are there optional renewal terms? If so, do you plan to renew? Does the lease payment go up? How much? 

Need help? We’re here for you.