AboutGina Boykin Expertise Financial planning, debt management & credit cards, stock investments, mutual funds, bonds, foreign exchange(forex), and saving money tips.
If I don't know something I will do my best to research and give you objective and relevant answers.
Education/Credentials B.S. Degree and 10 years of experience in Accounting and Audit. 10 years experience investing in stocks, mutual funds, bonds, real estate, options, and forex
Question Would it is possible to form a company profitable company by merging two companies, both of which are business failures?
Answer It depends on the reason. If the companies can, for example, become more efficient when they combine, they can be more successful.
Let's say you have 2 small retail stores. Both normally would have to pay for a manager, and maybe an assistant manager, and staff for each store. Each small business had to hire a tax professional and separate accountant. If they merge, you may be able to have just one general manager and one assistant manager for both stores. Instead of having several part-time staff, hire a few full time people. The joint company can just hire one accountant and tax person to take care of the financial stuff.
Overall the payroll costs will be less, which means the company will keep more of its profits. This is why most mergers result in massive layoffs (for very large companies).
Other costs may also be lower by merging. In the example above, the stores may be able to purchase items at a lower cost per unit because they are buying in bulk. Wal-Mart negotiates very lower prices from it's suppliers because they buy such large quantities. The suppliers don't make much money from each unit, but they fight to get Wal-Mart as a customer because of the volume.
Companies can also merge with a supplier. It is usually more profitable to both make and sell something, than it is to do just one or the other.
However, if the companies are "failing" because they have poor ethics, or the company's philosophy and mission are not being absorbed by the people who work there, or the company does not train people properly, or is run by incompetent people - no merger will help. Also, if the company provides or sells something that no one wants, there is no merger that will help.
