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Small Business Merger Guide

By Townes Haas   |    August 3, 2015   |    9:50 AM

Exploring options to merge your business with another? Here's what you need to know before you start talking x's and o's.

On a daily basis big and small businesses merge together, acquiring new companies and expanding. Merging two or more small businesses into one business is a phenomenal way to boost the performance of each individual small business as there are many benefits to be reaped. By amalgamating the strong points that each company provides, plus capitalizing on common company resources, mergers between two small businesses can be a great recipe for success. However, it is important to do your homework and not jump into a merger head first. Unreasonable expectations, lack of planning, and culture clashes may sabotage small business mergers. Much like matrimony, merging businesses can lead to a happy marriage or pure hell.

Ascertain the hows and whys

Mergers can be time consuming, fraught with legal issues and expensive, if not carried out properly. Ensure you have a clear plan in mind. What are your goals? How will the businesses mesh? What are the strengths and weaknesses of each company. Are you a good fit for each other?

Get all the Facts

Make sure both parties are aligned with respect to goals and resources. For example, if you think you can benefit from the other company’s business contacts and relationships, you’ll have to retain key people after the deal. On the other hand, some staff will inevitably be let go. You'll have to evaluate your personnel and be clear on which redundancies are required. Another key factor will be the allocation of funds. How will resources be shared? As a small business owner you will need to ensure your key assets are locked up and protected in the merger.

Ensure a smooth transition

A perfect business combination and fit is only one of the key requirements in the merger. One of the many other requirements is that company cultures are compatible and can interweave seamlessly with one another. The key to transitioning smoothly through a small business merger is successful integration and being on the same page when it comes to work ethic, ideology and brand culture.

Do you due diligence to avoid making mistakes

Hire a lawyer to help you negotiate the details of the merger and determine if merging the businesses will break any laws. It is crucial you consult with them before signing a letter of intent. It is also advisable to seek accounting advice to ensure everything is in order financially before proceeding with a merger. Be aware that even a “non-binding” letter of intent may include binding provisions that can cause difficulties when negotiating the definitive agreement.

Create your name

You may want a new name for the business formed by the merged companies. If you do opt for be a new name, new branding and marcomms will be needed. You may want to meld elements from the previous names and logos so customers can identify your product easily.

Announce your merger

Once you’ve sorted out all the details and ascertained the goals, look and feel of the newly formed company, it’s time to announce the news to employees, shareholders and the general public!