The decision to merge your business with another can be financially beneficial for both parties. It also brings with it financial and cultural challenges. Here are a few points to consider before merging to increase the chances of a successful merger. This article will now discuss what to consider when merging two companies, establishing new company culture and leadership and how to make the transition successful.
What Is A Merger?
A merger is where two or more companies become one business entity. There are several advantages to this since each entity brings with it its own strengths and weaknesses.
Structuring a merger varies from business to business. However, all parties involved combine their liabilities and assets to strengthen their overall financial standing.
A merger and acquisition is different in that with an acquisition, one company takes over the other company. However, you may hear people use the terms “merger and acquisition” and “merger” interchangeably. Knowing how to merge companies successfully is vital, and merging the company culture is just as important.
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How Culture Impacts the Success of the Merger
When making a list of what to consider when merging two companies, number one on the list should be the impact of merging company culture. Company culture is difficult to quantify. However, it is crucial.
Companies are like families. They have attitudes and behaviors that are accepted and those that are considered inappropriate. In the same way that forming a blended family can be a challenge if members of each family do not get along well, merging company culture can also be a challenge. Both sides need to understand each other, come to a middle ground, and eventually create a new culture that represents the new entity.
Communication is critical in this regard. Before merging with a firm, business leaders from each side should:
spend time at the company’s offices they are merging with
Talk with the company’s founders, and spend time with different employees
Get a feel for how open the employees are to merging
How willing are they to accept new leadership?
How challenging is it going to be for them to work with the new team members?
Determine Structural Details
The newly formed entity will require leadership. Structural details need to be established. This is going to require tact. The leaders of both companies are likely going to want to be in charge of the new entity.
Unless the leaders of the merging firms have gone into the merger with an understanding of who is going to be in charge, all parties involved will need to have difficult conversations to determine who will take the firm’s reins.
In addition to choosing who will be in leadership positions, the leadership structure needs to be built. If the new firm is a corporation, a Board of Directors will need to be appointed with elected officials. A managerial system will also need to be established. Communication is essential for this to be successful as each merging company may have had its own administrative structure that harmonized with its previous culture.
What To Consider: Analyze Financial Positions
Before any merging action happens, while determining what to consider when merging two companies, a careful analysis of the financials of each business must be done. All liabilities must be put on the table. Failure on the part of either party to disclose debts or liabilities can make a successful merger difficult or impossible.
Business owners can do financial due diligence themselves. However, it is doubtful that most small to medium-sized business owners have the accounting proficiency necessary to identify all of the issues that arise. This is why it is beneficial to use the services of a qualified accountant, especially a tax accountant who specializes in mergers.
What To Consider When Merging Two Companies: Getting Assistance
It can feel overwhelming trying to identify what to consider when merging two companies. It is best to use the services of professionals who have experience with company mergers. They can answer all the questions you have and help you identify questions you may not have thought to ask. Fusion CPA is a team of experienced tax accountants who specialize in mergers. We have helped countless small to medium-sized businesses count the cost before mergers. We can help you examine financials, review tax statements, identify liabilities, and gather the needed information to make your merger a success. Press the discovery button below to learn more.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
