13 Apr 2017
When you think of scaling or growing your business, what comes to mind? For many business owners, growth means adding new employees, moving into a new market, or adding new products, all with the goal of increasing profits and revenue. But your company doesn’t have to grow on its own. Another option is to join forces with, or merge with, another business. Whether the company you merge with is a bigger business or a similar-sized competitor, the move can have benefits for both of you.
1. Increased Cash Flow
One of the biggest benefits of a merger, especially for the smaller business, is increased access to financing and cash. If your company is relatively new and struggling to get debt financing or investor interest, but then joins with a business that has a long history or an established reputation, you might find that it becomes easier to attract investors or to get banks to lend to you. Alternatively, the merger might make it so that you no longer need to work with individual investors or seek out loans. The company you partner with might have deep enough pockets that it’s able to provide enough cash to keep your business afloat.
2. Improved Efficiencies
Another way that a merge can help your business is by making it more efficient. Instead of having to pay for two of everything, which was the case when you and the business you are considering merging with were separate companies, you can have just one of everything. That can lower your overhead, the amount you need to pay for employees, and the time it takes to complete certain processes.
3. Broader Customer Base
When you merge with a company, you get to expand your customer base without having to do extensive demographic or marketing research. If two similar companies are coming together, they can combine their customer lists to create one master list. If you’re joining with a larger company that covers a variety of niches and demographics, you can gain access to some or all of that business’ customers. For example, if you are a smaller retail outlet that sells clothing for women and you merge with a larger department store, your store suddenly has access to the women who might have frequented the department store, but not your boutique.
You can also expand your customer base by merging with a company that is based on the other side of the country or in a different market from your own. For example, if a small chain of stores on the West Coast merges with a chain based on the East Coast, the stores are now able to reach customers that they wouldn’t have connected with previously.
4. Add New Products to the Mix
Researching and developing new products is one way for a company to grow. But research and develop costs time and money. Merging with a similar or larger company allows your business to diversify or increase its product offerings without having to spend an extensive amount of time or money on developing those products. In this case, it helps to merge with a business to seems to be a natural fit or extension of your own. For example, the smaller boutique that merged with the larger department store will be able to offer its customers related products, such as jewelry and accessories, in addition to the clothing it was selling previously.
Even if two similar-sized, related companies join forces, offering new products becomes easier. You benefit from having an increased budget for product development, for example.
5. Benefit from Experience at the Other Company
One big benefit of merging with a more established, larger business than your own is that you are able to take advantage of the years of experience and expertise people working for that company have. In some cases, it’s as if merging with a bigger company means gaining a mentor or two in the industry. Plus, once you merge, you are all working towards the same goal: the common good and growth of your two companies, instead of competing against each other.
Although a merger can benefit your business in several ways, it’s possible for the process to go off the rails or to face challenges. A virtual chief financial officer can help you through the negotiation process, creating a merger that benefits both parties. To learn more about how to successfully navigate the merger process, contact New Direction Capital today.
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