Whether you’re leasing office space, equipment, or vehicles, lease agreements are a major part of running a growing business. But recent changes in accounting rules — specifically the ASC 842 lease standard — mean that entrepreneurs need to rethink how they manage and report these commitments.
Understanding lease accounting isn’t just for CFOs at large corporations. Today’s forward-thinking founders need to know how lease obligations affect financial visibility, investor confidence, and long-term decision-making.
In fact, according to a PwC study, over 70% of private companies found implementing new lease standards more complex than expected, primarily due to difficulties in tracking lease data and modifying financial systems to comply.
Why Lease Standards Matter for Entrepreneurs
For startups and growing businesses, cash flow is king. Lease agreements help conserve capital by avoiding large up-front purchases — but they also come with future obligations that affect your balance sheet.
ASC 842, the new U.S. lease accounting standard, requires nearly all leases longer than 12 months to be reported on the balance sheet — not just finance leases, but operating ones too. This change brings more transparency, but it also requires entrepreneurs to think differently about how they structure agreements.
Understanding the asc 842 standard matters because:
- It affects how your business appears to investors and lender
- It can influence your borrowing capacity or credit terms
- It requires more accurate tracking and reporting of lease terms
- It adds complexity to financial planning and modeling
- It impacts compliance with generally accepted accounting principles (GAAP)
In short: If you’re signing leases but ignoring how they’re reported, you could be underestimating your liabilities — and overestimating your financial flexibility.
What Entrepreneurs Should Watch For
You don’t need to be a CPA to get the basics right, but you do need to know what to track and who to involve.
Here are key aspects every entrepreneur should be aware of:
- Lease classification: Whether a lease is finance or operating affects how it’s expensed
- Lease term: Including options to renew, which may need to be evaluated as part of the liability
- Discount rate: Used to calculate present value of future lease payments
- Variable payments: These can change based on usage or performance metrics
- Embedded leases: Some service contracts may include a lease element that needs to be separated
This is where having strong financial advisors or systems in place pays off. Don’t wait until year-end to realize a lease wasn’t properly recorded.
Tech-Enabled Solutions Are Changing the Game
Manual spreadsheets won’t cut it for businesses with multiple leases or future growth plans. The complexity of ASC 842 has led to a wave of purpose-built software tools that help automate the lease lifecycle — from tracking terms to calculating liabilities.
Entrepreneurs can now use cloud-based platforms that offer:
- Centralized lease data repositories
- Automated calculations and journal entries
- Disclosure-ready reports
- Audit trails and modification tracking
- Integration with existing ERP or accounting software
These tools are not just about compliance — they help business owners make smarter decisions by offering real-time visibility into financial commitments.
Proactive Compliance Builds Credibility
One underrated benefit of staying ahead on lease standards? Investor and lender confidence.
If you’re seeking funding, clean and compliant financials are a must. Showing that your team understands and follows ASC 842 gives you credibility. It signals maturity, transparency, and preparedness — all things investors want to see, especially in capital-intensive businesses.
Think of lease compliance as a foundation: it may not be flashy, but it’s what everything else is built on.
Final Thought
Modern entrepreneurs wear many hats, but understanding lease standards should be part of the toolkit. ASC 842 isn’t just a technical accounting rule — it’s a shift in how businesses represent their obligations and make future decisions.
By taking lease compliance seriously early on, founders position their companies for clearer reporting, stronger financial discipline, and greater investor trust.
