How to Merge Two Small Businesses

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Business owners merge their separate businesses in hopes of forming a stronger entity.
Business owners merge their separate businesses in hopes of forming a stronger entity. (Image: Jupiterimages/Brand X Pictures/Getty Images)

A merger combines two separate companies into one new business. Mergers can be lucrative, especially for small businesses that are struggling to survive, as they can use it as a growth strategy. With proper planning for the transition, mergers can be a positive move for small businesses, particularly the vertical merger. The challenge is to blend cultures effectively and ensure that the joint venture is compatible.

Things You'll Need

  • Cash
  • Financial statements

Plan ahead to determine the best avenue to take that will facilitate the merging of organizational cultures that will avoid “collision.” You may need to have the businesses operate as separate entities at first or have one absorb the other. In the latter, you must give careful thought to the integration of cultures. While the focus is on financial gain, you must maintain and possibly boost staff morale. Integrate teams that include members from both entities so that they understand they are one entity with one goal.

Consult a merger intermediary, like a business broker who handles mergers of small businesses. They charge a percentage of the cost price for their services, which includes valuation, terms for sale and a follow up on all required legal procedures.

Negotiate beforehand who will stay and who will go. You do not need to duplicate duties. Agree on who will be in charge of what tasks so that you avoid conflicts. While each owner reigned supreme in his company, both cannot enjoy the same function in the newly created company.

Determine your new company’s name and check the baggage that you will inherit, such as the debts, employment contracts and obligations of the other company.

Decide which policies of both companies are best and retain them. Avoid keeping only your original company's policies and do not destroy policies of the other company that are vital to achieving goals.

Employ the services of an attorney to manage your merger closing processes. The closing of the sale is similar to that of buying a house. Your attorney will oversee the legal and financial aspects of the agreement. There are technical issues that can have an impact on the taxation of the transaction and create unnecessary costs. Although these services come with a price, avoiding unnecessary cost can make the services well worth the price.

Tips & Warnings

  • The implementation of a merger is not without teething pains, but these can be minimal if both parties take the time to discuss and agree on the way forward before signing a deal. Failure to do so can undermine the success of the merged businesses.

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