How to Effectively Merge a Pair of Small Businesses

How to Effectively Merge a Pair of Small Businesses
  • Opening Intro -

    Your small business has shown much promise and is ready to expand.

    One way to widen your footprint is to merge your business with another company.

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Although a merger is not the same as an acquisition, due diligence must be performed to ensure that the merger is the right decision. Smart planning can help you pull this off, enabling you to bring together different companies to form a new culture.

Merger or Separation

With your merger set to take place, you need to decide whether the two companies will be merged at once or whether they will operate separately — at least for the short term. With the second choice you gain all-important transition time. With the first choice you move forward as quickly as possible to blend the two companies.

There can be any number of reasons to slow the transition. First, for accounting reasons. It may pay to delay the official merger under the next fiscal year. Second, you may find that the companies have a far different approach to doing business. A gradual transition can make it easier for the two businesses to become one.

Get Help

When planning a merger, your accountant will review the financials to ensure that it is a good move for your company. You may also need to hire an independent auditor to review each company’s books and report these findings to both management teams.

You can also work with a business broker, especially one experienced in bringing small businesses together. A broker will valuate the business, review the terms of sale and help guide you through the legal jungle. You’ll also need your own legal representation to review agreements and contracts.

Managers and Employees

A merged entity will have people in duplicate positions. It is at this point you must decide who will manage the new company and who will compose your management team. For instance, the CEO of one company may stay, while the CEO of the other company may be let go or assume different duties. You need to carefully evaluate what your management team will look like moving forward.

Just as your management team will be culled, so will your employees. You need to be careful here: some employees may bolt the moment they think that their jobs are in jeopardy. Even so, you need to eliminate duplication by offering packages to some employees or moving employees around to fill open positions.

What’s in a Name

A small business may be a merger of equals. You do, however, need to choose a name that is right for your business. That name could include one used by either company, a hyphenation of the two or a completely new name.

Work with a branding expert to choose a name that is identifiable, recognizable and sensible. Just as important as the name is your choice in a logo. Even the smallest business should be easily recognized by its corporate emblem.

Set Revised Policies

From top to bottom, your new management team will need to look at the policies of both companies, ranging from employee relations to benefits to customer service and beyond. You may find that your team will create policies based on a little bit of what each company currently offers.

All new policies can be implemented as well. These may include: accounts receivable, accounts payable, hiring, marketing and management. The new policies should be understood and incorporated within an employee manual for the merged entity.

Closing Considerations

As you work your way to the merger, have your attorney draft a closing process. She may offer a checklist of things that must be done by both companies as you move to the closing date. Your attorney as well as your accountant can discuss with you various legal and tax ramifications that can ultimately decide when and how the two companies merge.

See AlsoSmart Marketing Strategies for Small Businesses

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Categories: M&A Planning

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