Academic journal article Journal of Accountancy

From "Write-Up" to Right Profitable: For CPAs, the Silver Lining in the Cloud Could Be a Gold Mine in Client Accounting Services

Academic journal article Journal of Accountancy

From "Write-Up" to Right Profitable: For CPAs, the Silver Lining in the Cloud Could Be a Gold Mine in Client Accounting Services

Article excerpt

CPA firms for decades saw little upside to providing basic accounting services to business clients. Bookkeeping and other "write-up" activities required extensive data entry and document transfer that chewed up man-hours but did not require much specialized knowledge. Client accounting services (CAS) were seen as commodities that brought with them depressed hourly rates and a risk of costly errors. It simply made more sense, not to mention money, for CPA firms to focus on higher-margin tax and audit work. It is a testament then to the transformative power of technological and market forces that CAS is now being touted in some circles as the future of public accounting. The digitization of financial data and the evolution of cloud computing, broadband connectivity, and mobile devices have made it possible for accounting firms and their clients to access critical information and applications from virtually anywhere at any time. This has set the stage for the development of cloud-based software packages that allow CPAs and clients to work from a shared database of the client's essential financial data. Cloud-based software automates or otherwise greatly reduces the manual labor associated with transactional accounting functions, opening the door for CPA firms to offer outsourced CAS in a scalable model capable of serving many clients and generating a steady stream of revenue and profits (see Exhibit 1 for a list of services commonly included in CAS offerings).

"CAS clients are like an annuity for a firm," said Michael Smith, CPA/CITE a McGladrey partner who helped build an outsourced accounting business for the firm.

The business potential of CAS is bolstered by increased demand from small companies and nonprofits for outside help with accounting functions. In addition, management teams are seeking higher levels of industry-specific knowledge to navigate increasingly complex competitive and regulatory environments.

These factors have sown the seeds for a fertile CAS market that some CPA firms already are harvesting. Steve Chaney, CPA, has leveraged cloud computing and market specialization to build a California-based accounting firm that serves 300 churches and faith-based nonprofits. Chaney & Associates enjoys what its founder calls an "endless" supply of work and high profit margins thanks to monthly fees that range from $1,000 to $8,000.

Other practitioners, including several who participated in panel discussions at CPA2Biz's inaugural Digital CPA Conference in December, report monthly fees as high as $15,000 per client and hourly rates of as much as $800 for advisory and project work.

How can CPA firms launch a cloud-based outsourced accounting practice and develop it into a profitable line of business, either as the main focus of a firm or as a complement to tax or other services? This article provides direction drawn from a road map developed by technology author and business consultant Geoffrey Moore and also offers insights from practitioners who have blazed the trail in this area.

THE FOUNDATION FOR CAS

A trio of mega-trends has laid the groundwork for the growth of CAS, said Moore, who interviewed dozens of CPAs while researching Accounting Services: Harness the Power of Cloud Computing, a white paper he developed for CPA2Biz, the AICPA's technology and marketing services subsidiary. Moore describes the three forces as follows:

Digitization. For accounting firms, this refers to the move from paper to paperless. The availability of financial information in digital form makes it possible to run cloud-based applications that swiftly process business data and identify, analyze, and report key process indicators for management. In this and other ways, the cloud breaks down barriers to productivity and reduces the limitations of size, granting small companies and firms access to computing power previously reserved only for large enterprises. …

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