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Client advisory services pioneer Kane Polakoff of CohnReznick looks into the future of this fast-growing service area, and outlines the steps firms need to take to succeed in CAS's next iteration.
Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Dan Hood (00:03):
Alrighty — welcome to On the Air with Accounting Today. I'm editor-in-chief Dan Hood. Everyone agrees that CAS is all the rage these days, but that's about all they agree on, with everyone having a different definition of the acronym, what services it entails, and as well as different visions of where this groundbreaking service offering is headed.
Here to talk about all that is Kane Polakoff. He's a CAS pioneer and a principal and client advisory services practice leader at Top 100 Firm CohnReznick. Kane, thanks for joining us.
Kane Polakoff (00:27):
Yeah, thanks for having me, Dan. Good to see you again.
Dan Hood (00:29):
Yeah, it's good to be talking with you. This is particularly about this topic cause we always, whatever we meet, we end up talking about cas because you, you're neck deep in it and everyone's fascinated by it and it's a big part of where the profession is headed. And I always sort of start conversations around CAS by saying, how do you define it? Because everyone, like I said, has a slightly different definition and they, I'm not saying they're not wildly disparate, but they definitely, there's little tweaks that everybody brings to their definition. So I always like to start there. How do you decide to define CAS?
Kane Polakoff (01:01):
Yeah, thanks Dan. I think people call ca certainly too. I think even before how they define it, I think we talked a while back where we call it client advisory services. I think CAS, CAAS, and different things like that. But I like to look at it from three perspectives, from people, process and technology and from the people side, what we do is we provide accounting support ranging from transactional level all the way up to CFO and everything in between. So in essence, we can come in and take over an accounting department to help support and stand it up, or it could be a very large organization that needs a big department to come in there and handle that. Two cases where we may have somebody working 10 hours a month supporting another accounting department that we're supporting for a client. So that's on the people side.
(01:52):
Then on the technology side, we provide what I call CAS technology from a tech stack perspective, which is everything from a general ledger system, so cloud-based systems that allow us to integrate with other point solutions such as a automation tools, expense management tools, even HRS and payroll systems as well. And the tools allow us and our clients to scale and to be able to keep the data in one place and help to automate our processes. And then on the process side, one of the most critical things is the documentation of standard operating procedures, making sure you get the rank controls in place and to ensure that you're really delivering efficient, timely, accurate financial statements. That's one of the key deliverables that we provide. But everything, all those ingredients combined becomes CAS and CAS can be a lot of different things, but I look at it as the foundation today.
Dan Hood (02:47):
I think that also covers a lot of my next question about is what are the critical elements of building a successful CAS practice? And I think you've touched on a lot of them in just describing what goes into your CAS model, but are there any other sort of critical elements that people should be paying attention to if they're looking to build a CAS practice that's going to last?
Kane Polakoff (03:06):
Well, I think a key thing is what kind of approach, what is your methodology and what industries? So when you take a step back, you do need to have the people and you need to have the processes and the technology that I shared with you, but are you going to run your CAS by your verticals, like industry verticals? Are you going to run it as generic? Are you going to go after large companies, small companies, startups? And so I think the first thing that I always thought about as I've learned over my career is to define the verticals that you want to focus on. So you become very good at whether it's not-for-profit or hospitality or government contracting or anything from that perspective. And the second thing is looking at the size of the organization and also the type of fees that you're looking for.
(03:55):
So are you looking to support clients like from mom and pops? Are you looking at a multi-billion-dollar or everything in between? Because that may determine the type of individuals that you want to bring in to your team to support that. And then most importantly is the methodology from the sales process to the implementation to the ongoing. You really want to think about how are you going to support that lifecycle to help retain the clients you bring on? How are you going to go to market? So all those aspects are very important. So you get into marketing, you get into resource management, you get into finance and accounting from profitability perspective. So all those things you need to have and support your people process and technology to help you become successful.
Dan Hood (04:37):
Awesome. I want to jump back a little bit to how you're talking about figuring out who you want to serve or how you want to serve, whether you want to be generic or do you want to focus on an industry vertical or that sort of thing. And I think it's interesting because I think that a lot of firms look and say, well, I've got clients all over the place and I'll just have my CAS practice serve all of them. It sounds like you think it's pretty important to really figure out who you want to serve in advance, not just to say, we'll give CAS to anybody who can scratch out a check. It's more about making sure that you're offering the right narrow or slice of your client base, the services.
Kane Polakoff (05:08):
Yeah, I think that's even more important because there's such a, like you said at your opening, there's such a demand for our services in the marketplace that there's not enough accountants. I think there's a lot of attrition within companies and man with it you can just continue to bring them more and more accounts. But what happens if you're so generic, you start bringing in accounts and you're not able to deliver everything successfully. So you really need to make sure you have that infrastructure in place first, but also manage that sales process. It's amazing how quickly you can grow a CAS practice and then grow too fast, meaning that you're bringing in five and 10 to 20 clients and before you know it, you're not servicing any of those correctly. So that's why I think it's important to have the vertical. If you say not-for-profit, you have folks that come from industry Tech SEC that supports that industry.
(05:59):
You'll have an idea of where you want to go after. So maybe you don't want a smaller account, you want to get a larger account that's maybe over a hundred thousand dollars a year in, geez, as an example. And then you can help position that. So the other thing is you don't want to take everything on at once too, because you can't do everything at once. So you want to have project management in place to schedule the implementations and making sure you're bringing things up in the right way. So you set the right expectations upfront with your clients. You don't want to have to spend most of your time firefighting. That's where I've seen a lot of folks have learned the hard way is hey, oh my God, look at all this new business. But then six months later they lose a lot of it because they're not able to support it.
Dan Hood (06:37):
Gotcha. That's fascinating. The overall story of CAS is tremendous growth, but it's interesting, there's those little checks in there, right? The points where you suddenly you discover, wait, I'm not serving these people and now, or they're saying, you're not serving us. So they're moving away. And then, which brings me to my next question, which is I think we've talked a little bit about when you're launching it right before you launch it, all the things, having all the infrastructure and the thinking in place and the strategy in place since you're serving the right clients with the right services, with the right tech stack, et cetera. But once you have all that, let's assume you've done it right and you've picked the right vertical and you've picked the right tech stack and you've got the resources on hand that you need to be able to serve that narrower a slice of your broader client base. Well, what do the people need to know from there about growing their practice, about taking a CAS practice? They've established it, they've got a clientele. Let's say they've made it past that first six months and no one's left them, or not many people have left them, they planned properly in advance. What's the next step? What's the next step for growing that to the next level?
Kane Polakoff (07:39):
Yeah, no, great question. So a lot of cases when we get involved with clients, it becomes it as simplest. They're not getting timely and accurate financial statements. And so we jump in and we have to clean up a lot of the work that wasn't done correctly. Their technology is outdated, they're struggling. So the first three to four or five months is you get them up to speed and you put all the right things together. You have the work papers, you're doing the proper reconciliation, you have a closed calendar, you're paying the suppliers correctly. You have multi financial statements that have narratives and all that as a solid foundation. But that's when you move the funding and then you get into whether it's fp and a services or even to hire more of looking at the data. And we talk a little bit about storytelling, but it's hard to start thinking as you think of as an accountant, as a historian, it's always looking back, right, looking at how you did last month or last quarter or last year.
(08:42):
And our vision, and that's where the advisory comes in, is that how do you now plan and forecast and plan for the future with your clients? And having those types of discussions that organizations look into, Hey, I want to acquire a couple of businesses, or I want to carve out a couple of those businesses. So we want to get to that point and have that really close, become that extension of our client's teams where we're able to see that information working with our clients and helping to advise them of where they need to go next. So the historical stuff is always such a critical piece and you have to do the timely act financials, you need to get all that done, but once you're in a good routine and you have that process done, then it's looking ahead.
Dan Hood (09:25):
Gotcha. So I was going to say, you talking about the onboarding, that three, four or five month onboarding process where you're cleaning up their books and fixing old hideous mistakes that came before and getting the processes in place, A lot of that's going to involve training your staff on the business, but also the people within the business on your processes when you have that all set up. I was going to say, it sounds like at that point, do things get easier, but then it sounds like that's where you start ramping up the next level of service.
Kane Polakoff (09:51):
And I think that's where I say is getting into steady state is only the beginning of the relationship. It shouldn't be the end of the relationship. When you think about implementing a software, the software is implemented, alright, we're going to use it. Well in CAS, it's only the beginning of this relationship. So I think that there's a lot of changing happening in the different industries out there and we all see that now's election year happening. So you have to be nimble, you need to have data at your fingertips, and you also make sure you get the staff things properly. So whether it's scaling up or scaling down or getting into different levels of details with our clients, and that's where you want to make sure you get the right type of individuals within your team, working with your clients to be able to have those appropriate conversations because clients are expecting us to pick up the phone or being on Zoom or to be in person now and having those conversations or three or four years ago, basically just setting a financial statement and thank you. It looks great. So that's really, which is fun because then they pull you into all different types of discussions. Well, I have some questions about my hr. I have some questions about my payroll, I have some questions about legal, and it really opens up the discussion to look at things more holistically and that's really where we want to go and take this to the next level.
Dan Hood (11:06):
Gotcha. Well, I want to dive much more deeply into that because that is a big, it's not a question, but it's the ongoing evolution that's going on seems to be going on for a lot of people within CAS. So I want to dive more deeply into that, but we're going to take a quick break.
Alright. And we're back. We're talking with Kane Polakoff of CohnReznick. Like I said, he's a CAS pioneer, he's been neck deep in CAS for quite some time and thinks a lot about it and talks a lot about it and knows what's going on with a lot of other firms, because I know you're in touch with a lot of other CAS leaders and CAS thinkers at firms all across the country. And we went through the definition of it and what it takes to start one up and to grow it to the next level.
(11:48):
But I want to move to what the last point you brought up, which is the shift from just the compliance focus, just sending over the financial statements once a month. And there's the famous idea of they just toss it over the wall and if the client does something with it, that's their, yeah, I'm done. My work here is done. But it seems like at least a lot of people are suggesting that CAS is moving away from that sort of, some people call it transaction based, some people call it compliance based. You mentioned the notion of historically focused or as being the historian to more of what you're talking about, that advisory-based CAS where you're really looking forward for your client. You said, I've looked at all your historical stuff and here's what I've learned from it, or here's what I've learned from my deep understanding of your industry and so on. Do you think that's really for vast majority of firms, is that where CAS is heading? Is it going to be moving towards that advisory type of thing? Is that where most CAS practices are headed?
Kane Polakoff (12:48):
I think that's where we need to go. I think that the historian, the block it and tackling the multi financials, there's still so much of a need for that right now, Dan, that we can do that for the next 2, 3, 4, 5, 10 years. But I think that once you get to that position where a client is seeing the results of timely active financials and asking more, there's higher expectations. And I think we need to challenge ourselves as an industry to be able to continue to move to the next evolution of where we need to be. I think that is important that when you look at the FP&A tools that are out there, AI and all the different things that are going to help us take data, not only financial data, but operational data, payroll and HR data, bring it all together, run cubes or models and based on that information, kind of help forecast what the future is, what ISPO cost, looking at different things in a restaurant or in a healthcare or things like that.
(13:51):
That's where we need to go as an organization. So the compliance work is still a foundation. It still needs to be done correctly because if it's not done or if it's stopping done, then you can't get to where we want to be. So we have to really automate that compliance, that ongoing work to get to a point where it makes it easy for us and all of us to spend more time thinking and listening and then driving to the future than to spend time looking at a big reconciliation or why was that done the way in the past? It's really looking at what we have now and how is that going to impact the distance by looking at environmental influencers, different things that may happen. So I think that is where we must say must go, but I think that most of us today are not at that point. And I think that's the exciting part for me, is to see us as an industry get to that point, which really will be transform the OZ, transform the industry and even help our clients get to where they want to be.
Dan Hood (14:49):
Right. Interesting. When you think about that, when you describe the potential services that you could be bringing from that, right? The advice you're going to be offering, you can clearly see why clients would find that more valuable. It's like we said, it was a toss up with a coin, whether they actually looked at the financial statement you send them in the past, but that if you talk about, you said meeting with them regularly once a month, once a week, whatever the case may be, whatever your cadence is to give them advice on what to do going forward, they're going to love that, right? You can clearly see the value. I'm curious, do you think that that's going to meet as more and more firms move towards an advisory focused CAS model? Are prices going to go up? I mean, is that a thing? Where are we going to be able to recapture some of that value or are we going to be able to automate it and automate the advice part of it to the point where it's just the same price or?
Kane Polakoff (15:42):
Yeah, no, it is a great question. I mean, I think that, I like to look at CAS as not a commodity, but I think some folks, if you go way back to write up work or bookkeeping, you think organizations or clients would pay it as a commodity as you think about it from that perspective. And I think as now as we moved more into more advice, the clients are willing to pay more for what we're providing to them today. There's a big difference. What I could charge a client for doing, just write up work versus to what we're doing today. And I think your specific question is, yeah, if there's value in what we provide, just like if you take a management consulting company, they're paying higher rates and higher fees so they get better advice. And I think that'll be an evolution of providing more value, which then of course there'd be more of a premium for those services.
(16:33):
And I think that's just naturally evolved into that point. And I do think that, I mean, I'll use the examples when you said earlier is when we used to provide financial statements to people and we sent 'em all defense, whether they look at it or not, they're not going to say anything. But now you review it with the owners or the CFOs and they ask questions. Now they have higher expectations what they're going to get next, so then the next month or months they're going to expect, well now give me trends. Give me me variances, give me models. And that's going to come with additional services, additional value, and also additional price. And so that'll be, as you move up that curve, you hear about CA 2.0, we talked about that CP com. I think that's where we want to hedge to that kind of vision where you're having that type of strategic discussions at that level, which would then bring a higher price deck.
Dan Hood (17:25):
Right. Now you mentioned, as you said, as you're reviewing the financial statements with the business owner or whoever's running, whoever you're reviewing them with at the business, whether it's a manager or the owner, you mentioned they're asking more questions. Do you find, generally speaking that your clients are, put it this way, how hard is it? Do you find it to get them to see the value? Do they come to you and say, oh, now that we're talking about it, let me ask you all these questions. Or do you find it's more common to be pointing these things out to the client and say, listen, here's the statement, here's the thing I've noticed. Let me tell you these three things, or are they pretty good at asking questions? Because there's always been sort of this question of how much clients actually understand the financial statements, how much they're getting out of them. So are they seeing it and going, yes, I get it, and now I have these 10 questions for you because now I've got you on the phone? Or is it more like you have to walk them through it and help them see the potential value?
Kane Polakoff (18:18):
Well, I mean, it depends on the client and the conversation, but it is an educational process from both sides in their relationship too. And I think that it's funny is that if you start providing somebody really good service, they're going to expect that type of service. So I think once they see this and they start looking at this, then they start thinking, why is that why it is? And then they want to ask another question, and then they see, well, by understanding the answer to some of those questions, oh my god, my food cost is too high or my labor's too high, or Why am I spending all this money here when I shouldn't be doing that? So then they start thinking, then they have questions, and by an evolution that those discussions become much more strategic then, Hey, let me point out this one number as an example.
(19:05):
So I think that it's a collaboration. It's a partnership. And most individuals, when they start understanding what they're looking at, then they become even more excited to have these conversations and want to learn more and to see what that information really means so that they can make the right decisions for their organization. So it's kind of fun to watch it. I mean, from not even reviewing financial, I mean, I had some clients that never even look at their financial statements and they're actually having conversations and looking at these trends, and they weren't even looking at the balance sheet. Now they're looking at the balance sheet and they're asking questions. So I mean, it takes a little bit of collaboration and a little bit of learning, and it's neat to see when that happens.
Dan Hood (19:49):
Yeah. Well, as you say, the best part of it is they start to realize the value you're bringing. Right? That's exciting. Very cool. I'd a lot more questions asked in a bunch of different areas, but I'm going to just talk briefly about, you mentioned that the move towards advisor use where we should go. Do you think that's where the firms are going to go? I mean, do you see any appetite on firms to say, listen, we've figured out the whole transactional based, the back office stuff, and that's where we're going to stay? Or do you really think most people have bought into the idea of, yeah, we really need to move into the advisory services, or is there more education to be done there?
Kane Polakoff (20:26):
I think there's a mix. So I think if you ask all the CAS leaders out there, some of them are just happy. I say, I want to be non-for-profit, and I just want to do transactional work. And they're fine. And I think there's others. But I think that once some of the organizations see the value and the margins that can be made from providing more advisory work in what it can mean. I mean, there's a big difference of charging a client $500 a month versus billing 'EM 250,000.
Dan Hood (20:58):
Yes. Yes.
Kane Polakoff (21:00):
So I'm,
Dan Hood (21:02):
I'm not good at math, but that's a pretty big difference.
Kane Polakoff (21:05):
So I think that when you see that there's organizations out here that are willing to pay for the value that they get, and I gave two extremes as an example, but then I think you'll see partners and others that are waking up to say, wow, I wasn't aware. And there's a huge need for that out there. And I think that as people get an appetite for what potentially could become what CAS is the future, I think there'll be more that are going to embrace that, which will take into do many different things. We talk about companies are now offshore so they can do more transaction work and have the team and the US doing more of the advisory side, and there's a way to scale up an accounts practice to be able to take on more work and more complicated work. And I think that's what we're going to add. But not everybody's going to head there at the same time. Everybody's going to take their time to do it the way they want.
Dan Hood (22:00):
Well, and even if they are a little bit behind, firms are making a ton of money at this and serving clients very successfully, everyone's very happy. So even if it takes 'em a little longer to get to the ultimate form of CAS, it's not like they're suffering in the meantime. Right? It's huge growth rates and very successful, satisfied customers.
Kane Polakoff (22:20):
I've done this now twice, and within a year and a half, I look at where I was previously. It's amazing where you could get, but you have to put into the right talent and the right people and the right focus, the right investment to make that happen, do that. But if organizations are, firms are going to embrace that, there's quite a bit of, you can move the needle pretty quickly because that'd be my response.
Dan Hood (22:42):
Awesome. Very cool. We're just about running out of time, but I want to, any final thoughts you would give to people as they're looking at CAS, whether they're new or have had it for a while, but looking to go to the next stage? Any piece of advice you would send their way?
Kane Polakoff (22:55):
Yeah, I mean, I think that the one thing about our industry and Dan is that we're all pretty open and there's a great collaboration amongst leaders and others within our industry. And I think since we're still, we're not as mature as assurance or tax or some of the others within public accounting, that there's a big need for some collaboration. And I think that there should be no reason why that anybody should be on an island by themselves, reach out to myself or others. There's a lot of wonderful leaders that are out here that are just trying to help make everybody successful. And that's how I started my career within CAS. Separately, it was reaching out to folks that have been doing it for a little while and I learned many different things. That's all I would advocate is that please reach out to folks. And there's great events and great things to within your magazine.
(23:47):
And we have ITA, we have Digital CPA. We have so many different ways for people to collaborate together, to share ideas and thoughts, and we take everybody's ideas and we learn from others, and we take what they do and help make it better. And before you know it, we're all where we want to be as an organization and as an industry. So this is an exciting time for me. I love what I do. It's some amazing people and I can't wait to book five, 10 years from now to see where we're at. It should be pretty exciting.
Dan Hood (24:15):
Yeah, definitely. You're absolutely right. There's a task community of task practitioners from firms all across the country, super willing to share, super excited about, as you say, the future of this practice area. Awesome. Kane Polakoff of CohnReznick — thank you so much.
Kane Polakoff (24:30):
My pleasure. Thank you again.
Dan Hood (24:32):
And thank you all for listening. This episode of On the Air was produced by Accounting Today with audio production by Adnan Khan. Rate or review us on your favorite podcast platform and see the rest of our content on AccountingToday.com. Thanks again to our guest, and thank you for listening.