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BUSI603 DB Forum 4b

BUSI603 DB Forum 4b - happened to successful companies This...

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DB Forum 4b Your post has caused me to reevaluate my own initial feeling that equity financing would be best for the diner. It is true that the use of debt financing would certainly allow for greater expansion of the business. Debt would also be one of the only possible ways to accumulate the $10,000,000 that they estimate as a requirement for franchising. I agree with you that this number is a high one for any sort of mix of financing at all, especially considering their $4,000,000 annual earnings. However, while debt financing would allow for expansion, it would leave the company in the hands of the owners. This diner seems like something that has outgrown itself and its expectations. While this fact may lead them to believe that a debt financing option is the best because the risk is subdued by their initial success, stranger things have
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Unformatted text preview: happened to successful companies. This is an especially important point to consider due to the current economic climate and the hesitancy of consumers to spend during these hard times. Also, perhaps the owners of the diner need help in managing and making executive decisions with the future franchise locations. An equity-financing plan would encourage outside investors to take part in the company, and could potentially bring wisdom to the executive decision-making table. However, a mix would probably be best, with debt financing being their obvious option in order to accrue the estimated needed capital. Even though it is a risky decision, you may be right. References Longenecker, J., Moore, C.W., Petty, J.W., & Palich, L.E. (2008). Small business management (14th edition). Mason, OH: Thomson South-Western....
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BUSI603 DB Forum 4b - happened to successful companies This...

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