When Opportunity Knocks: Is Starting a CAS Practice Right for You?

Expanding cloud-based technology, pandemic-fueled business needs, and evolving approaches to getting work done have accelerated the demand for outsourced accounting services, opening a door for robust CPA firm growth. Before walking through that door, three experts weigh in on what questions you should be asking when considering building a client accounting services practice.

BY CLARE FITZGERALD

Outsourcing is losing its stigma. The negative connotations associated with hiring out tasks are fading as the pace of life accelerates, work-life balance priorities shift, entrepreneurship expands, and business challenges grow increasingly complex.

Enter the boom of client accounting services (CAS). CAS has become a highly marketable and profitable practice area— especially for CPA firms with a growth mindset. In the same way homeowners might hire a lawn care service to free up a few weekend hours, business owners seeking more time to focus on their core competencies are increasingly turning to firms that can do everything from taking over back-office accounting work to providing CFO-level financial analysis and advice.

How firms package and brand their CAS practice area varies, but the most often used monikers, according to CPA.com, are client advisory services, client accounting services, outsourced accounting services, business process outsourcing, finance and accounting solutions, and managed accounting and advisory services.

And, according to CPA.com’s 2020 CAS Benchmark Survey, which gathers data from U.S. CPA firms to set CAS practice benchmarks and develop key performance indicators (KPIs) and best practices, the top five reported CAS offerings among respondents included financial statement preparation, CFO and controller advisory services, accounts payable, forecasting and budgeting, and 1099 creation and filing.

Notably, many accounting firms have long been providing those services without formally grouping them into a practice area or marketing them as such, but times are changing. For example, Porte Brown LLC, an Elk Grove, Ill.-based accounting firm, “started” its CAS practice in 2020 even though the offered services weren’t new. “We realized we were doing this already and could brand it and sell it separate from the accounting services we provide,” says Partner-in-Charge Michael M. Massaro, CPA, CGMA.

Regardless of the label, the goal with any CAS practice is to deliver strategic, high-value business insight that helps organizations grow. And, not surprisingly, the demand for that insight is strong. CAS practices participating in the biennial 2020 CAS Benchmark Survey reported a median growth rate of 20%—nearly twice the rate reported in 2018 and more than three times the 5.7% average growth rate reported by other accounting firm practice areas in 2020.

In addition to increased comfort with outsourcing, the expansion of cloud-based technology has also contributed to CAS practice growth, according to Amy Vetter, CPA, a Cincinnati-based trainer and speaker who offers courses for starting and scaling a CAS practice. “The development of CAS sped up when the tech industry started focusing on cloud-based accounting software,” she explains. “Being on the same system and sharing files remotely allowed clients and firms to see the same data in real time and have conversations about it.”

Massaro cites the COVID-19 pandemic as another accelerant in the CAS boom. “The pandemic really opened the floodgates. Everyone was gone from their offices, and we were already set up to handle this work remotely,” Massaro says, noting that his firm was already working in cloud-based systems.

While the market and opportunities are here, building a CAS practice requires rigorous planning. To determine if opening the door to the growth potential a CAS practice offers is right for your firm, here are six questions you need to weigh.

ONE Can We Secure Buy-In?

Be ready for skeptics because convincing partners that clients can and will pay for CAS can be a tough sell, Massaro says, who recommends getting partner buy-in as one of your first steps. He notes that it’s often the price tag and number of hours required to do the work that gives partners pause.

That said, Kalil Merhib, vice president of growth and professional services at CPA.com, says it’s important to ascertain if leadership will support investing in CAS: “CAS really requires immersion and understanding of the category at the partner level to secure the necessary resources.”

One way to gain leadership support is to encourage partners to look at their own clients with a critical eye for who could be a potential CAS client. “Get them to realize that a client could benefit from the services and be sold on them,” Massaro recommends, adding that firms can start small and look for low-hanging fruit that can be easily shifted to the CAS practice.

Also, if you’re the only one advocating for CAS, it makes sense to bring in reinforcements. “It can be a bear to be the champion on your own, and you need to have someone dedicated to the practice,” Massaro says.

Vetter agrees, stressing that firms often make the mistake of not identifying an owner of the category who can be involved, proactive, and talk about the practice in other department meetings. “Many firms know it’s an important service line but don’t have the right leader to own it,” she says.

TWO Are We Open to New Business Models?

Anyone considering building a CAS practice needs to understand that it’ll require a different operating model, Vetter says, as it doesn’t have the streamlined processes that tax and audit have, and firms won’t be able to run it the same way they run those practices. Pricing, for instance, is where your firm will need to be most open to different business models. “You need to price services based on value, not on hours, which can be a big shift for CPAs,” Massaro says.

Vetter adds that firms also need to be open to measuring success differently. “Evaluating how you’re working with clients is always a struggle, but success in CAS is much more dependent on client relationships,” she explains. “This practice is about helping clients make business decisions and meet their goals. You need to find ways to be as efficient as possible, so you’re spending less time behind the computer and more time with the client.”

THREE Do We Have, or Can We Develop, Industry Expertise?

Fulfilling the role as a trusted and strategic business advisor often depends on your depth of knowledge in the client’s industry, and providing industry-specific business insights is an important differentiator in CAS. Merhib stresses, “You need to be able to look at a dashboard of KPIs and understand how the data connects to provide insights. Bringing industry expertise really illuminates the data.”

Massaro adds that specialization and developing niches helped his practice narrow its focus: “Clients want to know that you’re an expert in their industry.”

“It’s simply harder to be one-size-fits-all with CAS,” Vetter adds. She suggests starting with industries that you’re already passionate about. “Build on your interest in the industry and gain an understanding of what keeps people in that industry up at night. Then focus on helping them solve those problems.”

With your specialties identified, Vetter says it’s then easier to be clear on your client profile and ensure that your messaging, marketing, and sales processes align with the specific industry you intend to serve.

FOUR Do We Have a Growth Mindset?

Firms that are operating successful CAS practices are providing highly valued strategic advice and positioning their firms for crossselling and long-term engagements, and with an entrepreneurial mindset, innumerable opportunities to provide ongoing support to clients can be found.

“When done properly, CAS architects value for the client and gives the firm a seat at the table for natural business conversations,” Merhib explains. “Businesses really value these services, because so many struggle with their financial hygiene and keeping their back offices clean. CAS establishes a solid foundation. Building a relationship at the data level also allows you to look at day-to-day business activities and become a trusted advisor for them to turn to as they mature.”

Vetter agrees that the strength of that advisory relationship is what separates CAS from other service offerings. In fact, Vetter uses the term “cherished advisor” to describe successful CAS providers. “They earn trust and become such a strategic part of the business that the owners can’t imagine not having their input and analysis. Opportunities then grow because you’re so deeply invested in your clients,” she says.

Taking advantage of those opportunities also requires communication among different practice areas within a firm. “Go to market thinking about the lifetime value of a client,” Merhib advises. “Successful CAS teams think about their client engagements in an ongoing way rather than as finite projects. As clients continue to improve and grow their businesses, you’re positioned to be right there with them.”

FIVE Are We Willing to Invest in Nontraditional Staff?

Staffing a CAS practice likely will require upskilling and adding new roles, so it’s important to consider whether your organization is willing to invest in hiring and training nontraditional staff. “As the complexity of the marketplace grows and technology becomes more sophisticated, firms will need many different experts, ranging from customer service to implementation,” Merhib says.

Vetter advises taking a strategic approach to assessing talent and roles: “It’s important to really determine what the jobs are that’ll be required. Don’t just think about hiring as filling seats, and don’t assume you have to look outside the firm. CAS often provides an opportunity for someone who was considering leaving your firm but might be interested in the new practice.”

Firm leaders should also consider adding people with operational backgrounds who know how to be proactive with financials. For analysis and business processing work, Vetter says auditors bring great background in looking at internal controls, and they might be pleasantly surprised that people on the CAS side want to hear their suggestions. For controller services, Massaro suggests looking at your accountants with five to 10 years of experience who can dive into strategic discussions with clients.

From his experience, Massaro has found that some of the easier service areas, like bookkeeping and bill pay, can be the hardest areas for which to find talent. “You can’t hire a bunch of bookkeepers and have them sitting around when you don’t have a client project,” he says. To solve that problem, Porte Brown relies on strong internal administrative staff, many of whom were former bookkeepers, who can perform administrative tasks for the firm and jump in on CAS client projects.

Another group you can’t afford to have warming the bench are your CFO-level players. For high-level projects, Massaro suggests making contacts with outside consultants who can be ready to engage as contributors.

Additionally, firm leaders should look at people in IT and other technology roles who can be strong additions to the practice to help with systems implementation.

Merhib adds that you also need to build career paths for all roles. “When you’re recruiting people with business, industry, and technology backgrounds, you need to find a way to showcase how their career can progress,” Merhib says.

Lastly, don’t overlook what can be an even more critical indicator of success than experience—passion. “Always look at people who want to learn the CAS side and have an excitement for it,” Vetter says.

SIX Are We Committed to Learning?

Having a passion for and a curiosity about CAS is key, but understanding its value and possibilities—and getting a practice off the ground—requires research and training.

Massaro says he had an interest in CAS and studied the space long before his practice took off. “Because I was out there learning, I could see that CAS was going to grow and that we had to enter the fold or be left in the dust,” he recalls.

To build your knowledge, Massaro suggests attending virtual and in-person conferences and connecting with and listening to experts in the field.

Vetter further recommends working with coaches to help develop business plans.

Merhib suggests engaging with the marketplace and talking to other firms that have previously entered the space can be especially insightful. “There can be a lot of benefits to not being an early adopter,” he says. “You can learn a lot from others who’ve been successful.”

However you choose to build your CAS expertise, one of Vetter’s biggest tips is to get started now. She stresses, “You don’t want to keep waiting until next year.”

As we’ve already seen, the demand for CAS will continue to grow as business needs evolve and the category itself becomes more widely understood. “As with any change, things start slowly and then rapidly accelerate,” Merhib says. “We’re in a period of great acceleration now, and it’s exciting that the profession has this opportunity on its doorstep.”

As investors, employees, customers, and other stakeholders turn their increasingly watchful eyes toward the ethics, sustainability, and global impact of the businesses they support, the acceleration of organizations prioritizing the integration of environmental, social, and governance (ESG) initiatives and reporting into their operations has gained momentum. Caught in the slipstream of that momentum is the imperative that these newfound ESG strategies be a value creator, fulfilling stakeholder concerns while also bettering the business by attracting talent, reducing costs, improving corporate image, and fostering innovation, just to name a few. But the road to implementing such an effective ESG strategy remains a foggy one. In turn, business leaders being challenged to adopt continually evolving ESG concepts and frameworks are increasingly turning to their accounting and finance teams to navigate this uncertain terrain. Charting a roadmap that offers a clear path to sustainability and success won’t come easy, but it’s an opportunity that offers CPAs a new frontier for which they can position themselves as strategic business advisors that drive long-term value creation.

Regulating a Roadmap

Socially conscious organizations have been behind much of the early ESG momentum, taking action to respond to society’s growing concerns about the global climate crisis and social issues plaguing our world, but this momentum is gaining further traction in the United States thanks to, unsurprisingly, rising regulations.

In March 2022, the U.S. Securities and Exchange Commission (SEC) proposed new regulations enhancing and standardizing public company climate-related disclosures in registration statements and periodic reports.

“The proposal is intended to address investors’ needs, help registrants disclose climate-related risks more efficiently and effectively, and strengthen existing disclosures, including the SEC’s 2010 climate-related interpretive guidance,” explains Elizabeth Sloan, CPA, Grant Thornton’s managing director of ESG and sustainability services.

In summarizing the SEC’s proposal, Sloan points out a number of new disclosures:

• Qualitative disclosures on climate-related risks, governance, and risk management, and impacts on a registrant’s strategy and business model.

• Identification of any board members or committees responsible for the oversight of climate-related risks, and the frequency by which they meet to discuss the risks.

• Whether and how climate-related targets or goals are set, and how progress is measured.

• Processes to identify, assess, and manage climate-related risks.

• Whether any climate-related risks are reasonably likely to have a material impact on a registrant’s business or consolidated financial statements that might occur in the short, medium, and long term.

• Greenhouse gas emissions for the most recent fiscal year and the historical periods included in the financial statements.

Given that the SEC received more than 15,000 responses during the proposal’s public comment period, it’s yet to be seen if any or all these disclosures will ultimately become part of a final regulation expected this year. However, as record-breaking temperatures sweep through the United States and across the globe, wreaking havoc on transportation, infrastructure, the agricultural industry, and overall economic productivity, the urgency over the SEC’s proposal has become immediately evident. Consider this: A 2021 study published in Nature Communications revealed the impact of historical heatwaves, finding that these climate crises lowered annual gross domestic product growth in Europe by as much as 0.5% over the past decade, and up to 1% in more vulnerable regions.

Investing in Transparency

Regardless of the SEC’s proposals and ultimate mandates, the call for increased corporate transparency is coming from multiple fronts. How organizations respond will be critical.

“In times of crisis, investors in particular will increasingly look at what steps a company is taking to minimize risks,” says Mark Stout, CEO of Apollo Energies Inc., a consulting firm that helps organizations become carbon-free and develop or improve their ESG reporting. Pointing to climate change, for example, Stout says it’s led to instances of “business disruptions, lost revenue, employee turnover, lost investments, and lost customers. Investors want to know how companies are mitigating the risk of losing revenue or slowing down operations.”

Beyond business risks, Stout believes it’s becoming increasingly important for organizations to demonstrate how they’re actively reducing their environmental impacts. “The extent to which a company manages their environmental footprint provides transparency into their actions and impacts the minds of stakeholders, regulators, and government agencies,” Stout says.

According to Chris Bolman, co-founder and CEO of Brightest, a software platform that provides individuals and organizations with an ESG and sustainability dashboard, 61% of institutional investors consider strong ESG performance an indicator of ethical corporate behavior and good management.

“Strong ESG performance is becoming intrinsic to your business model now and increasingly correlates with access to capital,” Bolman notes. “There are also many examples of companies generating millions in incremental revenue, or cutting millions in expenses, from thoughtful ESG implementation.”

“For example, acting wastefully regarding energy or other resources usually comes with a steep price tag for companies. The same goes for operating in an environmentally harmful way—taxes and other measures could substantially raise operating expenses,” explains Sarah-Marie Rust, founder and CEO of EVE, an intelligence and data analytics company that helps organizations electrify their transportation fleets and report their emissions.

Emphasizing that adopting a meaningful ESG reporting framework can help organizations uncover value creation opportunities, Rust says, “Companies are usually able to uncover wasteful activities that aren’t sustainable and are able to implement measures that reduce costs in the long run.”

A clear investment in ESG initiatives and reporting also signals to stakeholders that an organization is actively engaged in corporate responsibility, beyond the bottom line. “ESG reporting allows companies to take a stand on ethical and sustainability measures. It creates transparency, which builds valuable trust with customers, employees, and shareholders,” Rust suggests.

ESG initiatives also help build trust with employees—an important component in a competitive labor market where there’s increased scrutiny from potential employees. “Companies are noticing that attracting, hiring, and retaining talent is reliant upon an alignment of company values and documented actions,” Sloan says.

Keys to Your ESG Roadmap

When it comes to developing an ESG strategy, Luke Jacobs, cofounder and CEO of Encamp, an enterprise technology company for environmental compliance data management and reporting, says organizations need to start with empowering their employees to get involved—internally and externally. He suggests providing resources for employees to organize internal sustainability groups and providing paid time off for employees to volunteer at missiondriven organizations.

“Measuring these efforts and making them visible builds the momentum necessary for effective sustainability programs and evolves a company’s brand to genuinely reflect the desire to make an impact at an individual and at a corporate level,” Jacobs says. With a noticeable shift in consumer attitude toward corporate social responsibility, companies also need to consider how they build trust with customers.

“Sustainability and impact are now the core of a customer’s purchasing decision, and some even go as far as to not purchase products or services from companies that don’t align with their values. This is putting significant pressure on companies looking to retain and grow their customer base,” Rust observes.

One key to building trust with customers is to be transparent with your ESG initiatives and reporting. While some organizations may be hesitant to share their ESG metrics for broad consumption, which could expose operational weaknesses, Jacobs stresses that “remaining truthful to your organization’s mission and purpose is the best way to avoid backlash when sharing ESG metrics and providing the larger directional narrative about where the company is on its ESG journey.”

In fact, Rust argues that backlash isn’t always a bad thing—it could create a sense of urgency for organizations to improve their metrics and behaviors in order to be perceived in a more positive light: “Companies shouldn’t fear backlash when it comes to their ESG performance metrics but embrace it as a tool for becoming better.”

Ultimately, instilling an ESG mindset into your organization requires strong, clear leadership, and a commitment to investment and action. After all, it’s a cultural and operational shift. ESG needs to become part of your analytics practice, influence corporate goals, and be embedded in performance incentives.

When you further consider that ESG touches every department in your organization in some way, and impacts everything from board governance to sustainability, Stout advises that setting clear key performance indicators (KPIs) and goals are critical to getting buy-in, measuring success, and making meaningful change. Getting started doesn’t have to be a big ask, either. He suggests going after the lowhanging fruit first to start building internal frameworks for gathering data. “You have direct control over your energy use, and how your electricity is generated. So that can be your first destination to visit,” Stout says. “From there, you can visit your value chain.”

“As a company, we’re setting up milestones and KPIs that we want to achieve in order to be both more sustainable and inclusive, from the way we run our business to the way we hire new colleagues,” Rust shares as an example.

Point being, your milestones and KPIs must be informed by data, so it’s important that you understand where the data originates, where it lives, and how it’s collected, managed, and interpreted.

“Not knowing where your data is leads to inconsistent, inaccurate, and poor reporting. You can only improve your ESG roadmap and performance over time if you get command of your data,” Jacobs stresses.

“It’s important to not only set and track big milestones—for example, being carbon neutral by 2030—but to also focus on an engagement plan that allows you to follow through,” Rust says.

“While large, ambitious goals are typically the most publicized parts of an organization’s ESG strategy, don’t overlook small changes you can implement quickly that’ll have a lasting impact on your ESG performance.”

No matter the scope, ESG-related initiatives and reporting will remain challenging for all organizations to navigate as the regulatory and social landscapes develop, and accountability will be critical, Sloan says. She suggests assigning responsibility for ESG initiatives to someone with the support of management and the board to ensure greater acceptance and accountability for success.

As we’ve already seen, many organizations put their finance leaders in the driver’s seat, banking on them using their regulatory know-how and deep insight into financial health to guide the organization toward meaningful ESG initiatives and reporting metrics that bring added value to the organization and all its stakeholders.

Sloan says ESG initiatives are a terrific opportunity for accounting and finance professionals to provide strategic value and insight. A new or deeper emphasis on ESG practices in your organization is also a positive change for all employees, as it offers a new opportunity to upskill talent, helping them to fully understand the impact of ESG initiatives, and enabling them to incorporate ESG best practices into their everyday job functions.

While navigating the road to integrating ESG concepts into daily management and internal and external reporting may seem daunting, the benefits of doing so are worth the trip. Being a more socially conscious organization will not only benefit your bottom line, you’ll also better serve the environment and society as a whole.

Jon Lokhorst, CPA, PCC Executive Leadership Coach, Lokhorst Consulting jon@lokhorstconsulting.com