Successfully Navigating the Merger of Two Small Businesses

by Craig Anthony

2 min read

One of the most effective ways to grow your small business is to merge with another small business. The company you are merging with may already have a loyal customer base, infrastructure to expand, and efficiencies you can capitalize on by using them within your original business. But before you can enjoy the success of a merger, you must take the right steps in navigating the joining of two small businesses.

Internal and External Reporting

Your new business will still need to fulfill all of the external reporting requirements just like you did before. You may choose to have the two companies merged and combined under one tax ID number. If so, you may still have to file a tax return for the old company. You must update all licences, registrations, or certificates to the new entity’s name, have public records of company certifications updated to reflect the merger, and make sure to get all required documents from the other company before the merger is finalized. From an internal reporting standpoint, it makes a lot of sense to keep the two operations separate for some time. Keeping track of how each separate business or division is doing gives you information on which area is performing weaker and which areas of your company perform the strongest. You can also tell if the merger was a success in the long run, and whether the purchase of other existing businesses should occur.

Customer Relationships

When your small business merges with another business, you should notify both your existing customers and the customers of the merging business. Let the customers know of changes that will show up on their statements or invoices. This includes correct contact information and any changes made to the remittance location. When you take over another company’s customer base, you want to review the existing agreements and evaluate whether you wish to continue those agreements. If you are going to operate under one brand, make sure to clearly define your company name, logo, design scheme, and approach to handling customers. Although it is important to point out the changes, you should also let your customers know what will be staying the same including your existing products, locations, or hours of operation.

Vendor Relationships

You want to communicate to existing vendors about changes from a merger. This includes updating the address where shipments get sent and invoices get mailed, and who the contact will be for your new company. Inform the vendors impacted by company name changes. A vendor may be used to receiving a check from Company XZY. Inform the vendor that because of the merger with an existing business, future payments will come from Company ABC. You also want to use just one payment processing system.

Staffing Levels

As the two businesses merge, you need to address your staff. Some roles will be duplicated, so you should be prepared to make tough decisions relating to who will be kept. Those who are maintained should understand their role in bringing on a new company and the challenges that go along with merging with another company. Immediately import employee data so your payroll can be streamlined into one system, and process checks out of a single location. Tax withholdings or remittances should come from the sole surviving entity.A merger of two small businesses is complicated, but taking the time to understand your requirements and reaching out to everyone impacted by the change go a long way in making your merger a success.

References & Resources

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