As reported in Retail Traffic
Proposed new lease accounting standards from the U.S. Financial Accounting Standards Board and the International Accounting Standards Board have the retail real estate world dizzy with worry as property owners and managers fear the new standards will cripple tenants and lead to shorter lease terms and more conservative expansion strategies.
Financial Accounting Standards 13 (FAS 13) would require all lease liabilities to be accounted for on corporate balance sheets as capital leases rather than as operating leases. That’s an important distinction because operating leases allow tenants to account for lease liabilities as they are incurred. In contrast, capital lease liabilities must be accounted for in their entirety every quarter.
In addition, the new standards would require corporations, including retailers, to account for the full potential liabilities of leases—including options and percentage rent, not just the base rental fee. They would have to provide estimates on all contingency-based payments built into the lease, including lease renewal options, rent based on a percentage of sales and co-tenancy kick-ins.
CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com or call David Worrell at 888.472.5656
So, for example, a retailer would have to account for the entire potential 15 years’ worth of costs on a lease with a five-year term and two five-year options. As a result, retailers’ debt loads could appear to balloon up to ten times their current levels.
The Securities and Exchange Commission has estimated that more than $1 trillion in operating leases throughout the entire commercial real estate sector would need to be reclassified when FAS 13 goes into effect. As it stands, the two accounting boards plan to finalize the leasing standards no later than the second quarter of 2011.
The problem with this is that over the past few decades, retailers, more than any other type of commercial tenant, have become dependent on using various forms of contingency rents, says Vivian Mumaw, global director of lease administration with Jones Lang LaSalle Retail, an Atlanta-based third party property management provider.
The intricacies alone will make it difficult to comply with the rule. Retail leases today typically have five- to 10-year terms, with multiple renewal options. In addition, virtually all retailers pay a portion of their rents based on percentage of sales—meaning they pay more if sales exceed a certain threshold—while many also employ co-tenancy clauses, which trigger decreases in rental rates if other retailers move out of a shopping center.
All of that will make it difficult for retail chains to accurately estimate liabilities for the entire length of each lease, Mumaw says. In order to do so, they would have to forecast macroeconomic conditions, as well as the performance of their brand and the performance of each individual store many years into the future.
To read rest of article please visit :
http://retailtrafficmag.com/news/fas13_means_retail_real_estate_10052010/
Showing posts with label Strategies. Show all posts
Showing posts with label Strategies. Show all posts
Thursday, October 7, 2010
Sunday, March 21, 2010
IBM CFO Study- Larger Role In C Suite for CFO
Leadership From Forbes.com
The Big New Role Of The CFO
William Fuessler,
Global Leader of IBM's financial management practice.
The global economic downturn has put a bright spotlight on chief financial officers and the finance organizations they preside over. Amid all the world's volatility and uncertainty they have been drawn ever more often into the boardroom discussions where decisions are made. Their bosses, chief executive officers, no longer want mere number crunchers; they want them to provide forecasts, manage risks and provide insight into issues ranging from pricing to production. As a result, CFOs are emerging with far greater clout and responsibilities than before.
IBM's new 2010 Global CFO Study, based on input from more than 1,900 CFOs and senior finance leaders worldwide, attests to this shift. Although the importance of core finance tasks hasn't diminished in any way, CFOs have had to sharply increase their focus on company-wide concerns. The IBM study indicates that they are seriously struggling to come to terms with the dramatically altered economic landscape, and only half of those surveyed said they feel they're effective in giving their CEOs adequate business insight. An overwhelming majority are planning big changes.
CEOs and boards of directors are counting on their CFOs to be fact-based voices of reason and insight, but those expectations are rising faster than the ability to deliver. However, the study identified one group of finance organizations that have a particular combination of capabilities that buck this trend. We call them the value integrators. Value integrators' businesses have outperformed their peers on every common financial measure we examined. These leaders have stepped up to their new roles helping their businesses make all manner of enterprise-wide decisions better, faster and with more certainty about end results.
How have they done it? First, through efficiency. They have reduced complexity by sticking with common processes, for example using the same definitions across the organization for financial terms like gross margin and revenue. That may sound like a small, obvious thing, but it's huge. Many organizations use multiple terms to describe a single financial function, making reconciliation across the business a nightmare. Common terms make it far easier to consolidate data from the local to the regional and global levels, allowing more time for analysis. Less efficient companies consider it a victory merely to reconcile all their information at all.
Value integrators also have far greater analytical capabilities, enabling them to generate business insights that can help them spot market opportunities, react faster and ultimately predict changes in the business environment. They've even figured out how to drive sustained business outcomes in times of market instability.
This has happened, for example, at Banco Bradesco, one of Brazil's largest private banks, which has total assets of $253.5 billion. Bradesco provides a wide range of banking and financial products and services both in Brazil and abroad. Its leaders recently recognized the importance of more effective financial management and went to work standardizing its accounting processes and revamping its governance model to ensure that all departments had clearly articulated responsibilities. It also built a performance management system that allows it to evaluate risks and view profitability in many different ways, for instance by geography, customer or branch. The system also allows managers to build forecasts into their planning processes. As a result Bradesco is now much faster at gathering, compiling and reconciling data. It has the time for sophisticated analysis and is better able to provide decision support for its undertakings.
That's the kind of commitment and vision it takes to become a value integrator. How can a CFO get started on the journey? There's no one-size-fits-all method; it varies from organization to organization. But you can start by asking these few key questions:
--Do I have all the information I need from all parts of the enterprise at all times?
--Is the company focused on the right business metrics, the ones that truly drive business performance?
--How accurate are our crucial forecasts, such as the ones for customer demand and unit costs?
--Does the organization have sufficient analytical skills?
The answers to these questions will start to point a CFO to gaps in his or her finance organization, and awareness of those gaps will guide the creation of an action plan--an absolutely crucial activity that must be undertaken with great care, as the decisions made for it will have great ramifications down the road.
One thing is certain: CFOs cannot return to the pre-crisis days when they were little more than information clearinghouses. The era of the CFO as a key influencer in the C-Suite has arrived, and those who are ready for it will reap the rewards for their organizations--increased competitiveness and greater profits.
Blog Sponsor: Cambridge Consulting helps CFO increase profits fro their firms by helping then review commercial real estate assets and creating negotiated lease buyouts for unused real estate. Many organizations are looking at their unused office space as an under utilized physical and financial asset. Millions of dollars of capital can be created by eliminating real estate obligations. Foe more information please visit www.commercialleaseterminations.com
The Big New Role Of The CFO
William Fuessler,
Global Leader of IBM's financial management practice.
The global economic downturn has put a bright spotlight on chief financial officers and the finance organizations they preside over. Amid all the world's volatility and uncertainty they have been drawn ever more often into the boardroom discussions where decisions are made. Their bosses, chief executive officers, no longer want mere number crunchers; they want them to provide forecasts, manage risks and provide insight into issues ranging from pricing to production. As a result, CFOs are emerging with far greater clout and responsibilities than before.
IBM's new 2010 Global CFO Study, based on input from more than 1,900 CFOs and senior finance leaders worldwide, attests to this shift. Although the importance of core finance tasks hasn't diminished in any way, CFOs have had to sharply increase their focus on company-wide concerns. The IBM study indicates that they are seriously struggling to come to terms with the dramatically altered economic landscape, and only half of those surveyed said they feel they're effective in giving their CEOs adequate business insight. An overwhelming majority are planning big changes.
CEOs and boards of directors are counting on their CFOs to be fact-based voices of reason and insight, but those expectations are rising faster than the ability to deliver. However, the study identified one group of finance organizations that have a particular combination of capabilities that buck this trend. We call them the value integrators. Value integrators' businesses have outperformed their peers on every common financial measure we examined. These leaders have stepped up to their new roles helping their businesses make all manner of enterprise-wide decisions better, faster and with more certainty about end results.
How have they done it? First, through efficiency. They have reduced complexity by sticking with common processes, for example using the same definitions across the organization for financial terms like gross margin and revenue. That may sound like a small, obvious thing, but it's huge. Many organizations use multiple terms to describe a single financial function, making reconciliation across the business a nightmare. Common terms make it far easier to consolidate data from the local to the regional and global levels, allowing more time for analysis. Less efficient companies consider it a victory merely to reconcile all their information at all.
Value integrators also have far greater analytical capabilities, enabling them to generate business insights that can help them spot market opportunities, react faster and ultimately predict changes in the business environment. They've even figured out how to drive sustained business outcomes in times of market instability.
This has happened, for example, at Banco Bradesco, one of Brazil's largest private banks, which has total assets of $253.5 billion. Bradesco provides a wide range of banking and financial products and services both in Brazil and abroad. Its leaders recently recognized the importance of more effective financial management and went to work standardizing its accounting processes and revamping its governance model to ensure that all departments had clearly articulated responsibilities. It also built a performance management system that allows it to evaluate risks and view profitability in many different ways, for instance by geography, customer or branch. The system also allows managers to build forecasts into their planning processes. As a result Bradesco is now much faster at gathering, compiling and reconciling data. It has the time for sophisticated analysis and is better able to provide decision support for its undertakings.
That's the kind of commitment and vision it takes to become a value integrator. How can a CFO get started on the journey? There's no one-size-fits-all method; it varies from organization to organization. But you can start by asking these few key questions:
--Do I have all the information I need from all parts of the enterprise at all times?
--Is the company focused on the right business metrics, the ones that truly drive business performance?
--How accurate are our crucial forecasts, such as the ones for customer demand and unit costs?
--Does the organization have sufficient analytical skills?
The answers to these questions will start to point a CFO to gaps in his or her finance organization, and awareness of those gaps will guide the creation of an action plan--an absolutely crucial activity that must be undertaken with great care, as the decisions made for it will have great ramifications down the road.
One thing is certain: CFOs cannot return to the pre-crisis days when they were little more than information clearinghouses. The era of the CFO as a key influencer in the C-Suite has arrived, and those who are ready for it will reap the rewards for their organizations--increased competitiveness and greater profits.
Blog Sponsor: Cambridge Consulting helps CFO increase profits fro their firms by helping then review commercial real estate assets and creating negotiated lease buyouts for unused real estate. Many organizations are looking at their unused office space as an under utilized physical and financial asset. Millions of dollars of capital can be created by eliminating real estate obligations. Foe more information please visit www.commercialleaseterminations.com
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