When your profits drop and your loyal customers move on, you might think the only thing left to do is declare bankruptcy and try to retain as much of your finances (and dignity) as you can. However, if you’re willing to consider a merger or acquisition to save your company, you may not have to throw in the towel.
Even for veteran entrepreneurs, though, it can be difficult to understand M&A as an alternative to bankruptcy. But it doesn’t take long to learn enough to save your own business.
Signs Your Business Is Experiencing Financial Distress
On paper, financial distress is easy to understand: This specialized term refers to any business that can no longer bring in enough revenue to offset its financial obligations. However, many entrepreneurs think their company is doing well until the business is beyond saving. To keep this from happening to you, it’s important to understand the early signs of distress.
For example, while the numbers may fluctuate slightly throughout the year, a decrease in sales is always a bad sign. Another bad sign is that your regular customers stop turning to you for their needs. Soon, this may lead to cash flow problems, high turnover, and your lender asking if you need extra time to make payments. Ultimately, if you’re experiencing one or more of these signs, your business is either already in distress or well on its way.
Understanding M&A as an Alternative to Bankruptcy
If your company is in distress, you don’t have to simply give up on it. If you can either merge with another company or get acquired by one, then the company you built can emerge stronger and healthier than ever before.
For example, let’s say you own a franchise that is facing bankruptcy. If you’re willing to consider M&A as an alternative, you may be surprised by how easy it is to find another entrepreneur willing to acquire or merge with you. However, you should pursue M&A sooner rather than later…the more distressed your business is, the more difficult it will be to demonstrate its value proposition to others. This is something the right advisory board can help you avoid.
Business Restructuring Through M&A: Better Than the Alternative?
Managers and employees share the same fear regarding mergers and acquisitions. Specifically, everybody is worried about how the subsequent company restructuring will affect their workplace and their odds of staying employed. After all, nobody wants to be made redundant when the smoke clears. Leadership needs to offer transparent communication and keep cultures from clashing through and after the process.
But if you’re genuinely staring down the barrel of bankruptcy, the blunt truth is that it’s an M&A venture is infinitely better than the alternative. Sure, the idea of business restructuring through M&A may still seem scary, but if you go bankrupt, you’ll lose the entire business.
Pros and Cons of M&A Before Bankruptcy
There are many benefits to pursuing an M&A for a business in financial distress, but there are also some drawbacks. For you to make the right decision, you need to understand the pros and cons of M&A before bankruptcy.
Pros of an M&A Instead of Bankruptcy
The benefits of mergers and acquisitions are relatively straightforward. In addition to helping you salvage a struggling company, you have a chance to actually grow and potentially explore new markets. You may gain some awesome new talent, and when done right, good leadership can help achieve the kind of synergy you’ve never had before.
Cons of Choosing an M&A Over Bankruptcy
As for the potential drawbacks of mergers and acquisitions, most of them only occur if both companies don’t have solid leadership in place. For example, the M&A process can be distracting for workers unless a good manager is there to keep everyone on track. If done poorly, the M&A process can hurt the value of each company involved. Other than that, the chief drawback is that many aspects of the process, especially performing due diligence, can be annoying and time-consuming.
How BPO Can Help Save Struggling Businesses
Now you know more about how M&A can save a struggling business. But if you’re still on the fence, you should know that your secret weapon before, during, and after mergers and acquisitions is business process outsourcing (BPO).
It’s easy to think of BPO as mostly being useful for startup businesses, and outsourcing to professionals is indeed a great way to help newer and smaller companies reach their full potential. But it’s also great for any companies amid merging, getting acquired, or otherwise experiencing a major transition.
In some cases, good BPO can help you recover from financial distress before you need to even consider a merger or acquisition. But during and after combining your resources with another company’s, BPO can also help you provide top-notch customer service — all without breaking the bank.
The Bottom Line: What Are the Business Cost Savings of M&A?
Look, we get it: “Synergy” seems like one of those overused corporate buzzwords. But when done right, the synergies of mergers and acquisitions are the chief way that each party involved can realize major cost savings, which become doubly important if you are struggling with financing the merger or acquisition process.
When you strip everything down, this is the chief benefit of combining resources with another company: The two of you can operate more efficiently and realize many different synergies throughout the combined organization. This can be difficult (after all, not realizing these synergies is the chief reason mergers and acquisitions sometimes fail), but when you get it right, your company will emerge stronger and more competitive than ever before.
Mergers and Acquisitions: Find the Partner You’ve Been Looking For
Now you know all about pursuing M&A as an alternative to bankruptcy. But do you know how to find the perfect business partner?
Here at Confie, we specialize in helping turn your financial distress into a profitable future. To discover how we can help your own struggling company, all you have to do is call (714) 252-2500 or just use this form to contact us today!
