By Billie Nordmeyer MBA, MA
A small business owner typically needs a diverse set of skills to succeed, including deep market knowledge, effective management of business operations and hard work. One way to increase sales and profits is through a process called business consolidation. This process is designed to lower overhead and production costs, create additional revenue streams, attract skilled managers and achieve economies of scale.
Reduce Costs
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The consolidation of business activities reduces operational redundancies and eliminates superfluous staff and administrative functions. As a result, operating and capital costs decline, which helps improve the bottom line. For example, airline mergers lead to the consolidation of maintenance facilities, which improves the utilization of both the facility square footage and the maintenance staff. During the consolidation process, business functions are frequently re-engineered and systems are deployed that make these functions even more efficient. In an airline merger, the acquisition of goods and services can be centralized, which helps the merged company adopt a corporate-wide pricing policy.
Increase Revenue
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Businesses expand through either organic growth or acquisition. When a company buys another company, it might become sufficiently large to serve customers on a national or international basis. This type of organizational consolidation increases the size of a company's market, which in turn can lead to higher sales and profits. An increase in market size also provides an opportunity to expand a company's business line, which can lead to increased sales and profits as well.
Attract Partnerships
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Business consolidation is one means by which a company can become an industry leader. With greater size, the business can establish a regional or national brand and gain greater purchasing power. When a company buys out a rival company, it reduces its number of competitors. It also reduces the number of customers for industry suppliers. This in turn gives the merged company more negotiating power to get better deals with suppliers.
Increase Economies of Scale
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A business consolidation leads to the elimination of duplicate assets, which equals financial savings. By reducing the number of facilities in a business, it can save money and operate more efficiently. This consolidation can also improve communication between business functions, such as production and marketing, and achieve savings by decreasing head count and consolidating systems and processes. For example, a jet engine manufacturer might close one under-utilized manufacturing plant and install additional production lines at another plant. By closing one plant, the company decreases its labor and overhead costs as well as its capital expenditures.
FAQs
By combining resources, facilities, and technologies, organizations can achieve higher production volumes at lower average costs. This not only improves the overall cost efficiency but also allows the consolidated entity to negotiate better deals with suppliers and enjoy increased purchasing power.
What is consolidation of benefits? ›
Consolidation of benefits is a process CalSTRS uses to merge benefit coverage for a person who has accrued benefits under both the Defined Benefit Program and the Cash Balance Benefit Program.
What are the benefits of industry consolidation? ›
By merging with another company that already has expertise with a particular technology, development time can be reduced, and new products can be brought to market faster.
What is organizational consolidation? ›
Consolidation definition
Business consolidation refers to the practice of combining several business units of companies into a larger organisation. In other words, it's when two companies (or more) merge and become one.
What is consolidation and why is it important? ›
Consolidation is the bringing together of all financial statements of affiliated companies within a group. It is important in order to present the overall financial situation of the group in a transparent way. Here we show you what consolidation involves, how it is done and what it means for companies.
What are the advantages and disadvantages of consolidation? ›
It's possible to streamline your monthly debt payments into a single payment, lower your interest rate, improve your credit health and pay down credit cards faster. Still, you may also have to pay fees for a consolidation loan, and there is no guarantee that you'll get a lower rate than you currently have.
What are the benefits of consolidating cases? ›
The primary advantage of coordination or consolidation is indeed efficiency. It can lead to a more streamlined process, reducing repetitive evidence presentation and possibly leading to a quicker resolution. This is particularly beneficial in cases with common issues of fact or law.
Is consolidation a good thing? ›
Debt consolidation can be a good idea if you're having a tough time juggling your financial obligations. Consolidating can put your debt in one place, so you have a single monthly payment. That might help you stick to your repayment schedule and avoid any adverse consequences.
What are the benefits of application consolidation? ›
Application Consolidation Advantages
Cost savings: While a contract with a vendor like Microsoft can be expensive, subscribing to one app platform will be more cost-effective than purchasing the same set of capabilities from a selection of different vendors.
What are the reasons for consolidation of companies? ›
The reasons behind consolidation include operational efficiency, eliminating competition, and getting access to new markets. There are different types of business consolidation, including statutory consolidation, statutory mergers, stock acquisitions, and variable interest entities.
Financial consolidation is the process of combining the financial statements of multiple entities into a single set of reports. The goal of financial consolidation is to give management a clear picture of the financial health of the entire organization, as well as to comply with statutory and tax filing requirements.
What is the value and benefits of information consolidation? ›
The consolidated information has great value in decision making and problem solving as for taking decisions and solving problems, usable information is required. The reasons why we require consolidated information are: a. As complexity of decisions or problems increases, the need for information intensifies.
How many are the benefits of consolidation? ›
Consolidation can provide several benefits to businesses, such as increased efficiency, reduced costs, improved communication, and increased market power. It also allows businesses to streamline their operations, eliminate redundancies, and focus on their core competencies.
What are the benefits of brand consolidation? ›
The benefits of brand consolidation include an increased impact on your market presence. Bigger brands will typically have a bigger presence. By consolidating, you can increase your following more quickly. Another benefit to consolidating brands is the overall cost savings.
What are the two main types of consolidation? ›
The 3 Types of Consolidation Accounting
- Type 1: Full Consolidation. For this method of consolidation accounting, the parent company owns more than 50% of the subsidiary. ...
- Type 2: Proportionate Consolidation. ...
- Type 3: Equity Consolidation.
Having your leaders on-site under one roof also improves employee accountability, leading to greater productivity. Since you have efficiencies of scale, the company may even be able to provide work/life balance amenities (e.g. fitness centers, daycare) which help improve job satisfaction.
What is the purpose of group consolidation? ›
Group consolidation is the merging of two or more business entities. Create invoices for free with SumUp Invoices. Consolidation can be a formal process of legally combining two businesses, or a method of financial reporting, whereby a group of organisations is treated as a single entity.
What is the significance of corporate consolidation? ›
Consolidation in business refers to two or more businesses combining to form one new entity, expecting to increase market share and profitability and benefit from combining talent, industry expertise, or technology.
