A merger or an acquisition presents many opportunities — in more ways than most people realize. Naturally, there is the new opportunity for growth, expansion, economies of scale or synergistic efficiencies. On the other hand, there are plenty of opportunities for things to go horrifically wrong. Managing costs in business can become extremely difficult under these circumstances.
Melding two payrolls together can be more like a glue-and-duct-tape affair, rather than a seamless transition, for instance. Combining two separate IT systems into one that is expected to do something totally different can be another common headache.
Above all else, accounting and billing errors can slip through the cracks during a merger or acquisition. Watch your balance sheets and keep an eye out for the following problems you may encounter:
Vendor Billing Discrepancies That Make Managing Costs in Business Tougher
During a merger or acquisition, business operations typically become both more complex and decentralized. Combined, significant billing errors can easily result. Perhaps no one noticed a huge price increase during the shuffle, for instance. Other times, unnecessary or unused services get added onto a vendor contract and no one notices until after the fact.
In addition, accounting mistakes can lead to surcharges or excess charges that actually pay for nothing, such as double billing errors. Fees that were avoided in the past could also suddenly appear out of nowhere. Without the needed oversight, these excess charges get paid without any questions asked or audits performed.
Another common problem is underpayment of vendors. If the vendors happen to notice, they may want to hit your organization with penalty fees. Negotiation is usually the best tactic in these situations, but, as people grapple with M&A’s administrative changes, few employees have the time to manage these costs.
One solution is to vendor scrutinize contracts both before and after the deal. A spreadsheet of expected billing amounts post-M&A can be compared to actual charges, allowing your organization to quickly and efficiently spot errors since the fine tooth comb was already used.
Differences in Assets and Equities
Another common source of issues with M&A is an unexpected fluctuation in company balance sheets. Assumed numbers for assets may differ significantly from final values. If these assets have upkeep costs, such as excess printing equipment that must either be maintained or stored, businesses have a strong incentive to optimize their capital and avoid costs stemming from redundancy.
Similarly, the value of assets could deviate from expectations after M&A. An increase or decrease in share price, for instance, can affect the relative value of held capital.
Accountants can anticipate both problems by projecting possible scenarios before M&A. They should also review capital assets before the fact to eliminate redundancies and prepare for all costs associated with each asset.
Freedom Profit Recovery can help during in these crucial times. We perform rigorous audits in an effort to help our clients with managing costs in business. Before you pull the trigger on your next expected merger or acquisition, take a look at our cost management consulting services to ensure that everything goes smoothly while anticipating avoidable expenses.
About FPR
FPR is a privately-held North American-based consulting, technology services and outsourcing company. Through our industry-unique VISIONAnalysis™ process, we have successfully combined unparalleled expertise and comprehensive intelligence to deliver significant value and cost management to our clients. FPR collaborates with its clients to help them achieve high performance.
For more information, please feel free to contact Mr. Brent Newton at FPR at (972) 650-0700.