8-25-17

8A — August 25 - September 14, 2017 — Tax Issues & Accounting — M id A tlantic

Real Estate Journal

www.marejournal.com

T ax I ssues & A ccounting

By Michael Mullin, Integrated Business Systems Thinking about Cloud Property Management/Accounting? Consider these ROI-related points during the pre-planning stage

hensive view of a multi- f a m i l y o r commercial real estate o r g a n i z a - t i on ’ s pro - cesses, the benef i ts of cloud-based property man- W

hen it comes to gaining accessibil- ity and a compre-

strong case for change based on the anticipated return on investment. Following are five key ROI- related points that should figure into your pre-planning – if you want to get the green light on your new cloud-based system. 1. Hardware Acquisition and/or Upgrade Traditionally, the only in- stallation option for prop- erty management/accounting software was on the existing IT infrastructure. The cloud has changed that. Today, the availability of cloud-based

ERP solutions, Software-as-a- Service (SaaS) configurations and Cloud Service Providers offer a variety of options for property management/ac- counting software acquisition, deployment and usage. IT teams can choose among the solutions that are best for their specific real estate busi- ness. If an on-premises instal- lation is selected, an upgrade or acquisition of computer hardware, additional servers and/or telecommunications equipment may be needed. This impacts the ROI calcu- lation. Typically, computer

hardware is purchased and recorded on the balance sheet as an asset, with depreciation calculated over its useful life. The positive impact of the ad- ditional depreciation in terms of reduced taxes or improved cash flow should be captured as a benefit in the ROI calcu- lation. 2. Software Acquisition In the past, software and hardware purchases were ac- counted for in exactly the same way, in that the purchase of a software license was capital- ized and depreciated over its useful life. However, SaaS

subscription configurations have dramatically changed the way in which property man- agement/accounting software can be acquired and used. Recently proposed guide- lines by the Financial Account- ing Standards Board (FASB) provide the definition that if a fee paid under a SaaS ar- rangement includes a software license element, that cost ele- ment must be identified and treated as any other software license; that is, capitalized and depreciated over its useful life. If the SaaS arrangement does not identify a software license element, then the SaaS fee is treated as service contract and charged to operating expenses. The difference in treatment of the software acquisition cost in an on-premise arrangement or a SaaS arrangement can have a significant impact on the calculation of ROI. 3. Software Customization Cost Even when a property man- agement/accounting software product is a good fit for an organization’s needs, some customizationmay still be nec- essary. The good news is that a portion of the associated costs can be capitalized and depreci- ated. That should be included in the ROI calculation. The bad news is that per- haps no single property man- agement/accounting software implementation cost compo- nent is more underestimated than software customization. Moreover, software custom- izations can grow almost ex- ponentially, adding to imple- mentation time and delaying the realization of the benefits expected from the investment. Having a precise estimate of the scope, time and cost of a property management/ac- counting software customiza- tion can help to avoid major headaches. 4. Project Management and Implementation Cost While the all-up costs of property management/ac- counting software implemen- tation cannot be capitalized as part of the acquisition cost, many can be identified and in- cluded in the investment piece of the ROI calculation. The cost of external consulting or project management services should be included, plus the expense of training and of temp services that fill personnel gaps during implementation. Initial continued on page 12A

Michael Mullin

agement/accounting are obvi- ous. But how can the time and the cost of implementation be justified? You can make a

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