Forms of finance - case study
Read the case material that follows, and then answer the questions.
This company was founded five years ago by four partners. As an unincorporated business, it has grown slowly and steadily, and has developed a good reputation for the selling of old books. It is based just in one country and has 3 shops.
It is now at a major crossroads, and some major business decisions need to be taken soon by the partners, one of whom is approaching retirement age.
They have the opportunity of taking over a major competitor in the same area as they are in, but it will be expensive. They would need to raise $1 million. They have few loans at present, and could raise considerably more. It has been suggested, though, that this is the time for the firm to 'go public' and raise the money that way.
They have just been approached by the '3h' company, a venture capital organisation, with an offer to finance their expansion.
What should they do?
1. Explain the meaning of the terms:
- Unincorporated business
- Going public.
2. Discuss the additional sources of finance that would be available to Sherston Antiques if they went public.
3. Explain why the firm should aim for a balanced portfolio of finance sources rather than just one.
4. Discuss the advantages and disadvantages of using a venture capitalist to finance such an expansion.