Case Study Report

Case Study Report

Executive summary

Expected deliverable

It has been requested by the founders of Threshold Sports LLC to carry out an analysis of the financial options available to secure external funding of US$ 500,000, which will be vital for the success of the growth plans of the company. The founders expect that by securing these funds, the value o the company will increase considerably. Hence, there is also a necessity to explore the ways of communicating this value to outsiders. It is vital to observe that all companies have growth and expansion plans. This is the same case with Threshold Sports, LLC. The plans of the founders to source funds for purposes of expansion and growth are consistent with the objectives of the company to take advantage of the booming cycling industry in the United States. Specifically, this report analyses the available financial options and later recommending the way forward for Threshold Sports, LLC.

The need

The growth of a business is vital if it is to gain a competitive advantage in the market. However, this comes with the challenge of sourcing for the required finances. This is the exact challenge facing Threshold Sports, LLC, as the company has to source Us$ 500,000 externally.

Key findings

• The need for additional investment for the company is hugely relevant. Going through the business plan and strategic plans of the business, growth, and expansion are vital points. Therefore, to achieve the business objectives, the company must raise the required capital to finance its goal of business growth and expansion.
• Externally funding US$500,000 requires to convince financial institutions or other relevant lenders on the ability of the company to repay the loan. This means that the financial health of Threshold Sports, LLC must be coherent with the minimum set conditions for the advance of a business loan. Upon analyzing the financial data of the company, it was evident that the company is pretty financially stable. This can be confirmed from the profit margins, equity ratios, and other financial ratios. Therefore, the company is eligible for loans from financial institutions.
• Though bank loans are conventional in the business world, especially in the aspect of business expansion, other sources of income have been identified. One of these is the directors selling their shares to raise the capital required for the expansion goals. This is, however, a risky option as it could easily lead to the business owners losing control of the business if the expansion plan does not succeed.
• The necessity of explaining the value of the growth plan was explained in detail to the possible lenders, especially banking institutions. From the estimates of the long-term impacts of the expansion program, it was noted that the business is likely to double its profits over less than ten years. This was exciting to most of the prospective financiers, and most of them expressed optimism towards funding the expansion program.
• The value of the business was calculated with regard to the total assets of the company, cash held in banks, and the value of shares. This was shared with the relevant stakeholders.
• The cycling market in the United States is a vibrant business that has dramatically grown in recent times. This presents Threshold Sports LLC with a market niche to fill. Therefore, investing in the growth of the company is an excellent idea from the co-founders, David Chanuer and Gerard Casale jr.

Introduction

Threshold Sports LLC is currently presented with the opportunity to grow its control of the cycling market in the United States. However, to achieve this, the company requires a minimum of US$500,00 to finance its grand expansion plan. Through the analysis of the financial documents, the business plans, and business objectives, it is evident that the growth of the business gas been on the cards for a while. The ultimate challenge will be finding the best option for funding this expensive investment.

Issue analysis

Alternative 1: personal line of credit to finance the growth plan

This is the least bureaucratic as it involves the founders using their credit cards and other sources of income to fund the business growth plan. However, from the onset, it is evident that the required money is US$ 500,00. This could be a risky option for the long-term financial health of the business. Advancing personal credit for business growth is only viable if small amounts are involved.

Alternative 2:Home equity loans option

This kind of loan will require the founders to commit their personal properties as security for loans. It is a relatively risk-free option for the business but very risky for the founders. If the business plans don’t succeed, they could end up losing personal property, including their homes.

Alternative 3: Bank loans

Banks are there to lend money, and this is the most preferred method of funding business growth conventionally. There are different types of loans advanced by banks as follows :

• Installment loans- this type of loan will require the business to make equal monthly installments covering the loan and the interests.
• Secured and unsecured loans: Secured loans require collateral, while unsecured loans require no guarantee. The unsecured loan option is relevant for business growth, as the assets acquired by the loan become the collateral for the loan. It also has low interest compared to other loans.

Alternative 4: Angel investors

These are people who are willing to commit their resources to a business. These are different from the conventional lenders, and they invest their own money into the business, within the agreed conditions. However, there are no many angel investors due to trust issues.

Recommendation

From the analysis of the options available for the business, it is evident that bank loans offer the best chance for the business to realize its business growth objectives. The best option is secured or unsecured loans. For the secured loans, the company will have to commit some assets as collateral. For the unsecured option, the company will end up virtually investing the assets acquired by the loan as collateral. This comes at a lower interest, and therefore, the company should adopt this option. The founders should establish the value of the business and use this to convince prospective lenders.

Conclusion

Business growth is a fundamental aspect of the success of a business. Threshold Sports LLC must continue with its strategy of expanding the business and taking advantage of the broad cycling market in the United States and beyond. The founders should go on and convince lenders, based on the business plans, value estimates, and the details of the growth plan and secure an unsecured loan for purposes of expanding the business