Merging With Another Business? 4 Reasons You Need Financial Planning


Are you considering buying an existing business and merging it with your own? Mergers and acquisitions are some of the most complex business transactions any owner can undertake. They have many moving parts and require diligent supervision and planning. One area of planning that's essential is that of business financial planning. Here are a few key reasons. 

1. You'll Have Upfront Purchase Costs

The cost of buying or merging with a business may be a little (if the other business isn't doing well, for instance) or it may be significant. You may have to pay a lot of cash at once or be able to make many payments. But whatever the negotiated plan, one thing is likely certain — that it will take liquid cash up-front. Avoid being pressured by this increased cost by planning how you'll provide those assets for the big purchase. 

2. The Business Takes on New Expenses

Along with the one-time cost paid for your portion of the new business, you'll also take on new recurring expenses. Many aspects of both companies may now be duplicated for some time — including things like staffing and payroll, supply costs, inventory, or even equipment. It generally takes some time to sort through the redundancies in a merged business and reduce costs. You'll have to cover the additional expense while this process goes on.

3. The Merged Company Has New Goals

A new company will be formed when you merge two existing ones. That new company will have a new focus and new goals. For instance, if you are merging companies in order to reach into a new market, financial resources will need to focus on developing this and paying for the hoped-for added growth. Financial plans your company had in place before the merger need to be assessed and integrated with new goals after this event. 

4. There May Be Unexpected Consequences

No merger goes completely according to the plan. Your company's financial situation must be able to deal with unexpected issues that arise. You may have to pay significant severance packages. The purchased company may have a hidden liability. Or the seller may not be able to accept the payment terms you want. You'll need the financial ability to absorb what occurs once you put the plan into motion. 

Financial preparation to take on another business is the key to success during this transitional time. Your best bet is to work with a business financial consultant as early in the process as possible. Learn how financial consulting services can help by making an appointment today. 


29 September 2020

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