When Nicole Wolfgram founded NV Blue in 2012, she struggled with managing the accounting side of her clothing business.
"I have zero background in accounting or financial planning so I was throwing darts at a wall trying to figure it out," she recalled. "I quickly realized I couldn't do it. I wasn't capable of it."
Wolfgram then started researching products that could help her address her finances without having to hire someone dedicated to accounting or bookkeeping.
Eventually, she came across Xero and its Client Accounting Services (CAS) offering and signed on. She found it "affordable, accessible and pretty easy to use."
What are Client Accounting Services?
San Francisco-based InDinero, a software company that helps small businesses manage their finances, is a big proponent of CAS. Co-founder and CEO Jessica Mah classifies CAS as anything that goes beyond bookkeeping and IRS compliance.
"They are the basic accounting essentials that every small business needs," she said.
CAS is a growing business line for many accounting firms, and an increasingly popular accounting alternative for small businesses, said Amy Vetter, head of accounting for Xero, a New Zealand company with an office in San Francisco. Xero sells services direcctly to small businesses as well as to accountants and bookkeepers.
The advances in cloud technology have made CAS more popular, allowing business owners to upload receipts as they go and receive accounting services in real-time, Vetter said.
"This allows companies to be up-to-date on their books throughout a year, instead of just at the end of the year, when it's tax time," she said.
It's also a good alternative for businesses that can't afford a CFO or controller on a full-time basis.
"You can pay for someone with CFO skills to analyze what's going on in your business or to help with forecasting or making decisions," Vetter said. "Cloud-based technology has fueled a change in the accounting profession to help small businesses manage their finances, and make good informed decisions any day of the week."
Indeed, Wolfgram said she doesn't think her company would be in business without Xero.
"It's allowed me to enter markets I never thought I could, like international sales, which was a bit intimidating," she said.
Mah points out that CAS can help answer questions like whether a company should hire, raise funding or pursue debt financing.
How CAS benefits firms
CAS has become an important line of business for CPA firms in all size segments, even as overall client fees are growing, according to a recent survey by the AICPA Private Companies Practice Section and CPA.com.
"It's safe to say that nearly 10 percent of revenue in the profession are focused on client accounting," said Mark Koziel, CPA, CGMA, the AICPA's executive vice president of firm services, in a statement. "And depending on the size of the firm, it may be more or slightly less, but overall it's a strong category on its own."
Tom Li, director of outsourced accounting for San Francisco-based DZH Phillips, heads up the CAS line for his firm and has seen firsthand how its popularity has increased in recent years.
"It's one of the largest growth areas for CPA firms," Li said. "If you look at tax work, it's finite in a way – the only thing that can happen is if you take work from another firm."
CAS, he said, creates new work that didn't previously exist.
"In the two to three years we've been at this, it's become 25 percent of the firm's top line," Li said. "That's a lot. Will it go at this rate forever? Of course not. But that's a heck of an acceleration."
Li believes there are a number of factors that have contributed to the growth of CAS. A shortage of accounting talent has increased the cost of hiring.
"CAS allows companies to buy people's time for as much as they need it," he said. "It's more favorable than buying a whole person."
For example, Li estimates the salary of a data entry clerk in San Francisco is about $60,000 a year before taxes and benefits.
"That's a lot," he said.
But CAS, because it's cloud-based, allows people to work remotely.
"The cloud has lent itself to the demand from the market of outsourcing your accounting," he said. "There's a shortage out there of accounting talent. We as a firm face the same problem in finding it."
CAS can also save a client money in other ways.
By giving accountants the ability to access a business' record via the cloud, the accountant doesn't have to bill for time essentially wasted in traveling to the client, for example.
"This is where Xero comes in," Li said. "In the past, an accounting system would have to be accessed at the client's or at the service provider. Now we both have access to it and there's absolute transparency as to what we do. A client can go on at anytime and look at their own books."
Client Accounting Services fast facts
- CAS covers needs clients have beyond bookkeeping and IRS compliance
- In 2016, CAS made up at least 8.5% of the revenue for accounting firms, according to a CPA.com survey
- CAS benefits businesses by performing functions similar to a CFO
