5 questions to ask about CAS

There has been a lot of talk about client accounting services in the last few years, and quite a few firms have added this as a service offering. If you haven’t, it is certainly something you should consider, especially since you have probably been doing it without officially naming the service for decades.

Unfortunately, there is no single magic bullet for setting up or growing a CAS offering. But there are some good questions you should ask and answer to help shape your strategy.

1. What exactly is CAS?
Cloud-based accounting applications first came on the scene in the late 1990s. However, more than two decades later, there is still a lot of confusion about what qualifies as CAS.

Depending on who you ask, it can be:
  • Back-office client support using either PC or cloud-based accounting software.
  • Payment automation and expenses tracking.
  • Write-up work needed to prepare a financial snapshot, trial balance, financial statements and eventually, the business tax return.

According to CPA.com, the generally accepted definition for CAS is taking on the responsibility for all facets of your clients’ accounting, including accounts payable, accounts receivable, expense tracking and coding, financial statement preparation, month-end and year-end close, and advisory support.

No two firms are alike, so you need to clearly define what CAS means in your world, so you can develop the appropriate messaging to market and sell the service. Adding CAS is a chance to differentiate what you do and package it with other services in a way that will appeal to your clients. How you deliver the service and what KPIs you provide with your month-end close documents can provide great value, especially if you’re overlaying your CAS offerings on top of an already thriving tax- or assurance-focused industry niche.
2. Why is everyone talking about CAS?
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Prior to the pandemic, many small and midsized businesses and nonprofits were evaluating how to best manage their operations, including their accounting. For many entrepreneurs, CEOs and executive directors, as long as they have good financial statements and information from which to make informed business decisions, it doesn’t matter if they are produced in-house or by an outside resource. For many organizations, it is far less expensive and time-consuming to outsource this function than to build, retain and manage a finance and accounting team. While each case is different, the savings of buy versus build can be substantial.

According to Barry Melancon, CEO of the American Institute of CPAs, CAS revenues now represent 10 percent of major firm revenues, and many smaller firm partners are starting to take notice. Unlike compliance work, CAS is a consulting service and inherently less risky for firm owners. Properly planned and implemented, a CAS engagement is significantly more profitable than either tax or assurance engagements, and since they are typically billed monthly, the revenues and margin for the work are distributed evenly through the year. For example, I recently talked to a firm that closed a $200,000 per year CAS engagement. The audit and 990 for that same client was $35,000 per year. Which of these engagements would you prefer at your firm?

CAS is a growing service because it’s a win for the client and the firm. You will, occasionally, have to walk away from an audit to take on a CAS engagement, but the opportunity to grow revenues from doing so is definitely there.
3. Who provides CAS?
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There are a number of web-based fintech start-ups that provide low-cost solutions for sole practitioners, small businesses and franchisees. Their clients are not typically looking for advisory support and their tax compliance needs are uncomplicated. Additionally, there are a number of successful CAS-only practices run by CPAs, but most often structured as consulting firms, not CPA firms. Finally, there are a number of CPA firms that have built successful CAS practices organically or acquired the capability from others.

Just like assurance and tax practices that often grow based on industry expertise, successful CAS practices grow best when you start by focusing on a single industry. This allows a firm to grow their expertise and book of business in that niche. Once that practice is on solid footing, you can diversify it by adding additional industry specialties.

As you are looking at how to position your practice, don’t forget to look at what your competition is doing. Know who is out there, what — and level of — services they are offering and what buyer group they are targeting. It will keep you from jumping into a pool that is already crowded and help you define your unique place in the market.
4. Does location matter anymore?
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Where you built your practice was critically important as recently as the early 2000s, since the client came to you or you went to the client. This does not apply for CAS practices. While it has taken a global pandemic for the profession to truly embrace work from anywhere, cloud-based CAS practices have been leveraging remote workers and clients for more than a decade.

It may be impractical for a Detroit-based firm to do assurance engagements in Houston. But there is no reason an Ohio-based CAS practice can’t serve all the locations of a Texas-based quick serve restaurant group or a substantial percentage of dental practices throughout the United States.

When you are thinking about who you want to serve with your CAS practice, don’t limit your vision to businesses in your geographic area. If you pick an industry vertical that matches what your firm is doing, you can easily expand your CAS practice regionally or nationally. How you sell may be slightly different as you won’t be meeting buyers at your kid’s soccer game or the chamber dinner. But you can find an association or event that your targets attend and engage with them there.
5. Is CAS the right choice for your firm?
Is your firm looking for ways to flatten your revenue and become less reliant on compliance work? Adding CAS to the services you offer can be a great way to increase recurring revenue and keep your team members busy year-round. Will your firm be one of those that make 10 percent or more from CAS in the coming years? I hope so!