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IFRS 2019: new lease standards and flexible office solutions
With new rules on lease accounting on the horizon, businesses who lease their office space will face the prospect of having to list their property on their balance sheets as liabilities. Clive Jarvis, Group Financial Controller at Regus, explains why flexible office space could be the answer.
New ways to reduce new liabilities
In accounting terms, leasing is currently treated as an off-balance sheet activity, having no impact on net assets. From 2019, however, changes in accounting requirements will mean rent and lease payments will have to be listed on balance sheets, increasing a company’s liabilities. Firms will have to find new ways to reduce these new liabilities.
To buy or not to buy?
One possibility might be to purchase the office space, and make that property a permanent asset of the company. However, there are disadvantages. The majority of firms don’t have the spare cash lying around to buy their offices outright, and would therefore have to take out a mortgage, with its significant upfront cost: money they’d no doubt prefer to invest in their business. Coupled with the maintenance liabilities and lack of location agility this creates, this option often proves unsuitable for new and growth-focused businesses.
With liabilities attached to both leasing and purchasing, what options do businesses have to counter the upcoming assault on their bottom line? Perhaps a more attractive option could be to investigate the flexible office space market, a growth industry in recent years thanks to its agility and cost-effectiveness.
Use it or lose it
Fixed office space can often be an inefficient and unnecessary expenditure, with one study finding that desks can go unused for half of the working day. Come 2019, the need to quantify every square foot will be even more pressing. Many firms are already dispensing with individual desks and using technology to create shared spaces, thereby increasing efficiency. One HR company has found that their flexible working space increased by more than a third in the three years to 2015, while a Regus study carried out in summer 2014 showed that 31% of companies had observed an increase in flexible working over the past year.
Flexible space = flexible contracts
Another advantage of flexible office space can be the flexibility in contract terms, allowing serviced spaces to be offered for as little as a day, or permanent suites of offices to be leased for longer periods. With rents charged by the workstation, cost efficiency is key. Firms can expand and shrink their working space and costs in accordance with the ebb and flow of their business.
Supplying additional services
Serviced offices can be the best option for firms seeking to concentrate on their own business activities and leave the peripherals, such as reception, IT, cleaning and maintenance, to someone else. Having all these extras on tap is especially attractive to startup companies, and major cities around the world have seen huge growth in serviced space over recent years.
Flexible and serviced office space is already an appealing prospect for many businesses. With lease accounting changes imminent, making office-space spend more agile and efficient is taking on a new urgency. With providers matching the changing needs of modern business, these flexible and efficient spaces could be the solution.