Small Business Finance - Assignment Example

Business Finance Name Instructor’s Name Question 1 a) Reasons for seeking listing on the exchange According to 8Common the share offering is aimed at accessing working capital to accelerate business growth, repayment of convertible notes, and repayment of interests, make it easier for 8Common to access equity markets and opportunities for future acquisition (Sanston Securities Australia Pty Ltd., 2014). The purpose of listing according to Ashley Services include raising funds for Integracom acquisition, repayment of bank debt, addition working capital, fulfilling the requirements of Employee Performance rights scheme, realization of Existing Shareholders investments (Ashley Services Group, 2014). Others include presences ion the ASX increase access to capital markets and allow other stakeholders to invest in Ashley Services. b) Comparison of reasons based on topic notes Many organizations seek additional funds to pay debts since debts are a big burden to the organization. In addition, offering of shares increases working capital that is important to the success of any organization. Moreover, easy access to financial markets is easier achieved through listing. Operating businesses and running the business in stock exchange based environment provides appropriate mechanisms and structure to acquire or to have access to easier financing (Cinnamon & Helweg-Larsen, 2006). Banks and other financial institutions are better placed to provide financial assistance to a company in the stock exchange because numerous legal requirements, which the companies are supposed to follow. In addition, a public company can attract additional funds from shareholders because the companies can call on the shareholders to contribute additional financing to accomplish a given requirement. For example, the meeting of shareholders may decide to contribute a dollar for every share held. This translates in additional capital to fulfill a given requirement (Cinnamon & Helweg-Larsen, 2006). In general, the reasons the companies gave for listing are similar to the topic notes and apart from that single offering, the companies after listing are eligible to additional funding provided the business that they operate are viable. Question 2 Classification of Firms based on Churchill and Lewis’s (1983) five stage model According to the Churchill and Lewis (1983) five stage model, there are important stages, which the organization has to go through that would allow an organization to disengage or grow. The five stages are existence, survival, success, and takeoff and resource maturity. The existence stage is when the organization aims to attract and get customers (Churchill & Lewis, 1983). The survival stage is when the organization already has consumers, but it does not have enough cash flow, which is important in sustaining the business. The third phase is when the organization is stable and profitable and either as a growth platform or the customer wants to disengage (Churchill & Lewis, 1983). The forth stage of takeoff addresses concerns related with cash and delegation (Cinnamon & Helweg-Larsen, 2006; Gregoriou, 2011). The last of resource maturity is when the organization reaps the benefits and addresses any inefficiency. 8common Limited is at the stage of success since the business is making profits (Sanston Securities Australia Pty Ltd., 2014), has customers, and the entire business structure is stable. 8common aims to increase the market presence and the organization can achieve it through seeking additional funds, creating a system that can easily attract additional funds, and diluting the power of current owners (Churchill & Lewis, 1983). In addition, Ashley Services has been in operation for a longer period, and its stage is takeoff (Ashley Services Group, 2014). The company wants its original owners to access their investments while the company wants additional funds to finance business operations (Churchill & Lewis, 1983). Moreover, through public offering, the management of the company would be delegated ensuring newer, and quality talent is introduced into the company to ensure the company continues successfully. Question 3 Debt of each company before listing Companies seek debts to accomplish specific business requirements. Both companies have different types of debts that are either bank debts or debts on convertible notes (Sanston Securities Australia Pty Ltd., 2014). The current debts of 8common Limited are A$ 1,854,000 and after the floatation, 8common will not any financial debt (Sanston Securities Australia Pty Ltd., 2014). Ashley Services current bank debt is $25.3 million (Ashley Services Group, 2014). After the offer and payment of this debt, Ashley Services would not have additional debts. Hence, seeking additional capital is important to both companies because the companies would clear debts and avoid additional debt expenses such as interest (Cinnamon & Helweg-Larsen, 2006). The companies would concentrate in development and improvement of business activities. Debt levels relative to the reasons for listing According to 8common, the debts are very high since the debt accounts to more than 50% of the amount to be raised (Sanston Securities Australia Pty Ltd., 2014). In the case of Ashley Services, a debt to amount to be raised is approximately 25%; the company aims to raise $98.7 million. Most of the amounts raised in the case of 8common are aimed at paying debts but in the case of the Ashley Services, the new capital is aimed for business and company development. Empowering Ashley Services employs would translate in an increase in revenues, which is important to the success of any organization (Ashley Services Group, 2014). Therefore, after listing, both companies would continue operating without debts complexities. Sources of debt According to the unit material, businesses raise capital through different strategies (Neale & McElroy, 2004). The strategies are dependent on the organizational structure, the amount required and utilization of the funds. In addition, the strategies are aimed at diluting owners’ stake within the organization or introducing investors that can continue improving the business operations (Cinnamon & Helweg-Larsen, 2006; Dlabay & Burrow, 2007). The 8common debts are associated with the investments of the owners of the company (Sanston Securities Australia Pty Ltd., 2014). The owners want to reclaim their investments so that the company becomes public. The 8common debts are consistent to learning materials. 8common model is introducing additional investors while relinquishing their capacity of managing a business (Sanston Securities Australia Pty Ltd., 2014). According to Ashley Services, the bank debt was used to improve the activities of the organization (Ashley Services Group, 2014). The company had taken a loan from ASG that was aimed at improving the business operations (Ashley Services Group, 2014). The amount accessed from the bank might not have been enough to sustain the operations of the company. Therefore, the company decided to sell shares to increase funds that are accessible resulting in accomplishments of business strategic obligations. References Ashley Services Group. (2014). Prospectus. Retrieved from http://member.afraccess.com/media?id=CMN://2A810861&filename=20140811/ASH_01541624.pdf Churchill, C., & Lewis, V. L. 1983. The five stages of small business growth. Harvard Business Review 61(3): 30-50. Cinnamon, R., & Helweg-Larsen, B. (2006). How to Understand Business Finance. London: Kogan Page Publishers Dlabay, L., & Burrow, J. (2007). Business Finance. London: Cengage Publishers Gregoriou, G. (2011). Initial Public Offerings (IPO): An International Perspective of IPOs. London: Butterworth-Heinemann Publishers Neale, B., & McElroy, T. (2004). Business Finance: A Value-based Approach. London: Prentice Hall Sanston Securities Australia Pty Ltd. (2014). 8Common Limited Prospectus. Retrieved from www.sanston.com.au/uploads/ Read More