In today's competitive environment, it makes good business sense for small- to mid-sized accounting firms to forge strategic alliances with non-accounting firms. Such alliances can be an excellent way to extend the range of service offerings -- and earn fee income -- while strengthening client relationships. But in order to maximize the potential of strategic alliances, it is critical to choose good partners and take certain steps up front to get the relationship off on the right foot.

The following summary of the rationale for alliances today, and advice for identifying and launching strategic alliances, is based on our experience at Duff & Phelps. We created our first accounting firm alliance three years ago and since then have built successful alliances with more than 200 accounting offices nationwide.

Competitive Reasons for Strategic Alliances
Strategic alliances help today's small- to mid-sized accounting firms mitigate two major business risks. First, larger, consolidated firms in many markets are cutting fees because they have greater economies of scale. If a smaller firm has to cut fees to compete, it can replace some of that lost revenue with referral fees from strategic alliances. Second, larger firms can offer a broad range of services and bill themselves as "one stop" service sources for clients' financial needs. Strategic alliances help smaller firms offer some of the same services and better retain clients.

The alternative to alliances -- building the services in-house -- typically takes too long and is too expensive for many smaller firms. To develop a credible service, the firm has to find and attract "A"-level talent to run it; pay a good salary and incentives; and carry the person until he or she can get the business off the ground. By contrast, strategic alliances provide immediate credibility and expertise, and require no startup or overhead costs.