Business merger brings confidence in tough times

A major benefit of smaller companies merging is that it gives customers greater confidence that the combined business will better cope with a harsher economic environment.A SMALL business owner committed to energising and growing the operation should understand the benefits of joining forces with another entity in the same field or sector.
A merger, where two companies come together to establish a more sustainable or robust business, usually gives the market more confidence in its long term viability.
Unfortunately, very few small businesses understand the benefits of merging with another and rarely consider it. Perhaps they view the merger option as only a big company option?
Take a look the number of Bay of Plenty-based plumbers, electricians and arborists advertising in the yellow pages. There are 127 plumbers, 192 electricians, and 63 tree service businesses.
We suspect many of them are struggling to make ends meet on a consistent basis.
I asked my business associate, accountant Bruce Habberfield Lee, why is it that so many small business continue to struggle on the same way they started, when merging could provide a real alternative.
Bruce believes you have to think about how small traders have got to where they are. In most situations, an excellent tradesperson has been successful from their own efforts.
They have put together enough money for a van, had it sign written and given out a few business cards to everyone they know. To start with, jobs just come and everything appears rosy.
The problem is after a while all your friends do not need your trade and you have to obtain work from outside clients. Then it becomes apparent there were advantages being with your old firm.
If you were a "sparky", a co-worker would always be available to pull wires; likewise a builder would have some labour to hold the other end of the plank.
Now you are self employed, you have to work out how to overcome these issues. Sometimes your partner or child could assist, but this requires both of you to earn a living from the same activity.
Many businesses start up by relying on the spouse's regular income to pay for the groceries and outgoings. It is not always an option to have your spouse assist, except after hours.
Some may employ casual unskilled labour when necessary and get frustrated with the lack of understanding, motivation and/or cost of this person.
Most likely, a small business operator will find a subcontractor but in this situation control remains with the business that has the job - and the relationship lasts only as long as necessary to complete the task.
Self employed people tend to rely on these temporary subcontractors and you could well ask why they do not form some lasting business partnership.
Bruce says that subcontractors are often viewed as the competitor. Forming business relationships and confidence take time - largely it is a trust situation.
So how can a small business commence the merger option?
The key is to examine your business vision and ambition, and to get a good business advisor/project manager to support the process and chart a pathway.
But in the first instance, the small business owner should develop a shortlist of target companies who have similar aspirations and where management chemistry could work.
There needs to be an identification of the benefits of the merger. These might include: Grow at a faster rate; gain market share; expand geographically; realise economies of scale; cost reduction and/or productivity; gain new knowledge; access to new customer markets; asset reduction, releasing cash for growth; and staff retention due to greater career opportunities and more challenging work.
We believe that one of the major benefits of smaller companies merging is that it gives customers greater confidence that the combined business will better cope with a harsher economic environment.
The companies need not be in the same geographic region, but come together in order to have cross selling opportunities.
There also needs to be an assessment of management capability to ensure that the new business structure supports the bigger company.
What we have found to be the best small business merger is horizontal, meaning a builder, stopper, plumber, electrician would combine together to give a complete package service to the customer.
Each person has their own area of expertise but each can help the other, share resources such as employees, and premises. 
Today we have virtual office advantages. We are not restricted to one work premises. The internet and technology means we are able to have office assistance all over the country.
Successful business operators who understand the benefits of merging will gain competitive advantage and improve on the old way of doing business.
Putting two business together is no simple task and the grief of separation does mean careful planning and issues need to be addressed at an early stage.
Cliff Osborne and Associate Bruce Habberfield Lee are based in Tauranga. View:  www.cliffosborne.com or contact   cosborne@watchdog.net.nz