6 Things to Consider Before Merging Your Business

Merging one business with another is a major step to take and will inevitably be an upheaval for both concerned; while many merges can be extremely beneficial for both parties, others can prove quite the opposite while some never even see completion.

Sound preparation will help ensure both businesses are set on a course to achieving what the merger sets out to accomplish. 

Along with financial due diligence, other factors have to be taken into account such as company culture, division of responsibilities, the systems each business uses, such as inventory management and accounting, and to decide whether to dovetail each business’s tech facilities or choose one over the other. 

1. Communication needs to be consistent

It’s imperative to communicate effectively and truthfully with staff, customers, suppliers and others affected by a merger.

Staff, especially, can be unsettled by the news, so it’s vital to convey why it’s happening and stress the positives. Staff will feel much better and will likely to have a more constructive attitude to a merger if they know what’s happening, why and when, compared to being kept in the dark with only half-truths, rumors and gossip to rely on.

If the merger is likely to cause disruption, then be honest; if people are forewarned there is far less alarm if things get bumpy while the merger proceeds.

The same applies to customers, even if the service and how it’s delivered to them isn’t likely to change. Suppliers may also be affected if, say, invoicing and payment routines alter, so be sure to speak to everyone affected.

2. The new business structure

Both financial and operational structures require clarification:

Financial

How are both businesses set up in terms of accounting and tax? Are both companies an LLC (Limited Liability Company)?

Operational

How will the merged business be managed? Will it be a combination of personnel from both companies or will one management team prevail?

This is a key area to clarify as mergers can sometimes collapse over leadership and governance issues.

3. Juggling two different cultures

Integrating the company cultures of two different businesses can be a challenge, but it’s vital if the two companies are to work harmoniously together.

Examine and assess each company’s philosophy, management style and approach to customer relations and future planning methods. Is everyone on the same page?

4. Agreements and documentation need to be formally signed

Any letter of intent you draw up and sign should be vetted carefully by trusted legal and accounting professionals to ensure you’re not committing to binding agreements that could leave you in a vulnerable position.

Ensure confidentiality and non-disclosure agreements are understood fully by both parties, and ‘change’ documentation is fully agreed upon and drawn or re-drawn. For example, if employee admin and contracts will be handled differently under the new regime, then ensure revised contracts of employment and similar are created.

5. Confirm what has been agreed

Clarify exactly what you and the other business have agreed to contribute to the merger. For example, if their IT structure is superior to yours, will you benefit from it?

If the merger includes your having access to their customers, how will this happen and what scope is there?

What financial commitments are both parties making to the merger in the short term and investing for the future?

6. Plan for the worst

It’s possible that the merger simply won’t work out despite everyone’s best efforts and due diligence.

To make the best of this, it’s important to put provisions in place for your business to be able to continue its activities and emerge as unscathed as possible. It’s not uncommon for some mergers to fail, so plan for the worst.