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The advantages of collaboration through alliances

15/12/2015

There are many challenges affecting accountants and accounting practices. Technology, globalization, regulation, and attracting and retaining talent are some of the more significant challenges that small- and medium-sized practices (SMPs) are having to address. A Forbes article, “The Biggest Concerns Of Small Accounting Firms,” cited the results of a survey of managing partners from 301 of the smallest SMPs. The article reported most notably that increasing competition is squeezing fees, which could undermine SMPs’ future profitability and may force the reconfiguration of key aspects of the profession. IFAC’s own global survey of SMPs also highlights the challenges facing SMPs.

To tackle these challenges, SMPs need money to invest in new processes, technology, and people. But they need more than just money. First of all, they need to be aware of the significance and implications of the changes affecting the profession. And they need to find ways of taking advantage of the new opportunities that these changes and challenges present. Compliance with regulation, and reporting and assurance on non-financial information, are two examples of the emerging demands of wider society on companies: accountants and auditors can play an essential role in them.

Collaboration through alliances is increasingly common in the business world. A previous Gateway article examined the case for more of the same for accounting practices. Whatever the size of practice, collaboration in any shape or form with other professionals and practices offers many advantages. Sometimes SMPs will need to make allies of competitors—as explained in this article.

So what are the advantages of collaborating? Here are some:

1.The interchange of thoughts, experiences, and best practices enriches everybody and opens minds.

2.Collaboration empowers partners and employees in a common project, opening up more opportunities for the future, and in so doing, becomes more appealing to existing talent and newcomers.

3.Joining efforts gives size and critical mass sufficient to afford the necessary investments in technology, training, marketing, international relations, and specialized people recruitment, etc.

4.Size increases profitability, enabling bigger and/or more sophisticated engagements.

5.Collaboration increases productivity and reduces costs, as it makes it possible for practices to specialize, and also to optimize training, quality control, administration, etc.

Certainly there are market opportunities for all sizes of practice, providing they render good quality services. But it is also true that the bigger the practice, the better equipped it is to cope with the threats and exploit the opportunities that the increasingly complex economic environment presents. In fact, whatever the starting point, doubling the size of the practice has the potential for exponential advantages.

Different models of collaboration can be used to access these advantages:

1.Mergers. Sometimes it is not easy to find suitable partners to merge with, but often the barrier to merging is more one of attitude. It is true that having new partners means decisions have to be discussed among a wider group, and when one is used to a particular decision-making process, changes to that process will prove difficult. But the positive aspects outweigh the negative, as sharing views enriches people and practices; discussion among professionals can be rewarding and inspire creativity.

2.Acquisitions. They require money, but oftentimes, one can readily identify practices where the principal partner would like to retire in a few years, and an acquisition, or an agreement for medium-term acquisition, presents opportunities for growth and the integration of good professionals. Quite often younger partners or directors/managers in these practices are prepared to embrace change and can be key to strengthening one’s practice in the future.

3.Local Association. Diversification can be very important, as is the need to broaden the range of services provided to clients. When trying to diversify our activities, it is important to ensure that the appropriate level of quality for each service is maintained. The market expects a consistent level of quality across all the services we provide; it will judge us by our weakest link. So often, the best way to diversify is to build a strong and close collaborative relationship with one’s professional peers. The practices can maintain financial independence and even keep their existing names. Sharing the same location is preferred, as clients see the whole range of services offered from the same source as a one-stop shop. Also opportunities for dialogue are greater when the practices operate in close proximity.

4.National Association. It could involve two or several practices, and they could be in the same city or not. In some cases, the services they provide could be similar or complementary, in other cases, one or more firms could be highly specialized in a different market or service. In other instances, collaboration could be established for specific projects, such as for significant tenders or to develop some technological tools. One should explore whether to collaborate from project to project or on an ongoing permanent basis. Collaboration agreements can be formal or just operational. Collaborators can decide to keep their own brands or use a common brand or both; that is, keeping their own brand and also disclosing their association brand. In fact, there are as many different models as the imagination will allow. One needs to keep an open mind if one is to find the optimal structure, as often one initial collaborative step leads to further steps toward stronger alliances.

5.International Network or Association. Another article examined the case for joining. It’s crucially and increasingly important to attend to the needs of clients who have international business. As globalization is more and more common, even among small- and medium-sized entities (SMEs), it’s vital that practices are able to provide them with a good international service, especially the more dynamic SMEs. International affiliations bring contacts who can look after one’s clients abroad. International affiliations can improve the quality of all its members, as these relationships enable practices to learn from one another. Often networks or associations have procedures manuals, newsletters, and international meetings, which include seminars and training sessions. There are different kinds of networks and associations, but generally speaking, all of them will help to improve the quality of their members, and help them serve their clients abroad.

Every kind of practice, from the audit specialist to the advisory boutique and everything in between, faces a number of challenges and changes including the technological, regulatory, and market centered. Collaboration, whatever the shape or form, stands to help us tackle the challenges and leverage the opportunities. Better together than alone.

Antoni Gómez Valverde, international chair of Auren and IFAC SMP Committee Member