Is your firm actually as profitable as you think?

Ready to take a hard look at how your firm is operating? This week, we explore multiple ways to evaluate your firm’s performance, from the size of your staff to the numbers behind your profit margin. You’ll also find a checklist to prepare your firm to sell, plus an in-depth guide on how to craft a CAS engagement letter (and why you should).

But first, grab some popcorn and read about the original Survivor winner Richard Hatch’s ongoing tax drama as he appeals $3.2 million in tax debt stemming from his $1 million prize.

Right-sized staff: Listen to how one firm owner found the sweet spot by cutting headcount in half 

Skills transfer: Intergenerational mentorship programs could deliver the feedback younger professionals crave 

Do the math: 40% margins are less impressive when the firm is overly owner-dependent

Ready to sell: Don’t forget any of these 14 steps, starting with goal-setting and ending with the post-sale wrap-up 

Champagne problems: How to manage the new challenges that come with fast company growth 

Level up your CAS engagement letter

Offering client accounting and advisory services (CAS) often leads to higher revenue, but it also opens the door to increased risk of litigation from clients. Sarah Beckett Ference, CPA, offers guidance on how to create a formal CAS scope, starting with asking clients the right questions. Both parties should then agree to an engagement letter, which should include responsibilities, deliverables, fees and other terms. Everything can be updated in the future as the scope changes, but you need documentation at every stage.  

Why this matters: Neglecting the importance of an engagement letter can put your firm at risk for years to come. (Journal of Accountancy)

The Wild West of AI accounting

Dan Callaghan, CAO of FloQast, argues that AI’s impact on the accounting industry will be the same as tractors had on farming. But as you incorporate new technology, Callaghan recommends you proactively prepare for upcoming regulations. He recommends creating validation and oversight processes for AI-generated outputs. You must be able to answer how rules were set, who reviewed and approved, and how you know every AI report is accurate. As you create new workflows, remember to include your own compliance frameworks as well.  

Why this matters: Preparing for future SEC requirements now will save you major headaches in the future by not having to backtrack and create validation protocols after your AI workflows are set in stone. (Forbes)

22%

Annual client base growth for accounting firms in 2025 (TaxDome)

• EY lures new recruits with $10,000 CPA exam bonus
• IRS plans to rebuild staff with 175 new tech hires
• Washington, a no income tax state, slaps 9.9% levy on millionaires
• Cost, lost work time and future earnings impact grad school ROI

Planning for the future

How can accounting firms prepare for the next 15 years? Rise 2040 is a collaborative effort between the AICPA and CIMA to answer that question. Technology futurist Daniel Burrus has been tapped to help and sees accounting as an industry rooted in trust, soft skills and critical thinking. Accountants should strengthen skills like collaboration, strategic listening and relationship building while also creating higher value services as AI increasingly executes lower-level tasks. 

Why this matters: Burrus argues against a “wait-and-see” attitude when it comes to technology trends. Defending the status quo often results in lost opportunities related to innovation and growth. (Financial Management)

The Net Gains is your one-stop shop for fresh, FREE accounting insights. You can reach the newsletter team at thenetgains@mynewsletter.co. We enjoy hearing from you.

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The Net Gains is curated and written by Lauren Ward and edited by Bianca Prieto.