Synergy occurs when two companies combine to create one large company in order to reduce costs and increase profits. If your small business is interested in mergers and acquisitions, synergy can increase your productivity, help expand market share, and improve management. Synergy can help a company that produces raw materials merge with a company that uses the same raw materials to create finished products, which eliminates the need for unnecessary tasks such as searching for vendors or sourcing for materials. As a small business owner, you should consider complementary businesses for synergy and understand the three types of synergy to determine if they offer any benefits to your type of acquisition.
Revenue synergy focuses on profits, and this type of synergy ensures the combined companies make more profits together than each could individually. Your small businesses should use revenue synergy to increase sales, as revenue synergy improves the variety of products for both companies, which helps your business sell more products.
Although cost synergy does not focus on profits, this type of synergy helps your small business reduce the operating costs for both companies. From office supplies to utility expenses, cost synergy uses the resources of both companies to lower or eliminate certain operating costs.
Financial synergy creates financial advantages for both companies, as this type of synergy improves the cash flow and capital structure of each company, which helps secure larger bank loans and allows the combined company to take advantage of specific tax benefits.
If you’re considering an acquisition, your small business can use synergy with a complementary business to eliminate your weaknesses and amplify your strengths. Synergy helps your small business improve productivity, reduce costs, and increase profits.