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What does it mean to consolidate a business?

On Behalf of | Dec 14, 2023 | BUSINESS & COMMERCIAL LAW - Business & Commercial Law

The act of combining one business with another can happen through different kinds of transactions. As an entrepreneur, you probably have a specific kind of combination in mind, to consolidate your business with another company.

In an acquisition, one company buys another, but the two businesses keep running separately. In a merger, two companies come together to create a new business. However, business consolidation brings two or more separate companies into one unified company.

How consolidation works

A consolidation specifically refers to integrating and streamlining the operations and infrastructure of different companies. This includes merging various business functions like production, marketing, accounting and human resources.

The new company operates under one unified leadership. This means they share resources, blend systems and get rid of duplicate roles and processes. The main goal is to save money and make things run smoother by eliminating redundancies between the companies.

Reasons why business owners consolidate

Several potential benefits make consolidation an appealing option. One major benefit is that it cuts down on repeating jobs, places and equipment, which lowers operating costs and can increase profit margins. Also, the combination of systems, procedures, supply chains and job talent can boost efficiency.

Since the unified company is usually bigger than the smaller ones that joined together, it has more power and resources when making deals with vendors and suppliers. It can also reach more customers by using the best marketing strategies from both companies.

According to Nerdwallet, 20% of new small businesses do not make it to their first year, and only 34.6% of small businesses founded in 2012 achieved 10 years of operation. This is why some business owners look to create a new business through merging with another company. When done right, consolidation helps smaller companies become stronger as one big organization.