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Starting a company is not an easy task. When one gets past the planning process, the financial issue pops up. To choose the right financial strategy for the S&S Recycling Company, which is going to offer its litter-picking services for the neighborhood, as well as raw materials for furniture-producing companies, a careful evaluation of the existing options is required, especially in the context of high competitiveness.
Debt Financing as a Possible Solution
When considering the existing financing options for S&S Recycling, one should mention such an opportunity as debt financing. According to Bragg says, “In the case of debt, the funding is contingent on some obligation to pay interest in exchange for the use of the investment funds, which are also to be returned at the end of a stipulated period” (Bragg, 2012, 46). The given strategy seems quite legitimate; however, when applied to S&S Recycling, it might lead to some undesirable results. For instance, in case S&S Recycling fails to gain the required revenue or the estimated income will be less than expected, the company will face a serious threat of bankruptcy.
Equity Financing: Evaluating the Effects
Another possible solution for S&S Recycling can be the equity financing strategy. It is necessary to stress that equity financing is typically considered a perfect strategy for the companies that just have entered the market: “Companies that are good candidates for equity investment are those companies in the development stage, or those who are at an inflection point for accelerated growth” (Understanding a firm’s different financing options, n. d., 6).
Weighing the Pros and Cons: The Right Financing Strategy
In the context of a small company that is going to use its relatively cheap prices and offer free services to its loyal customers, all the financial operations must be controlled by its board. Therefore, it can be suggested that equity financing, with the possibilities that it offers, is a perfect solution for S&S Recycling at present. When the company becomes stronger, claims its leadership position in the recycling market, and starts growing, it will be reasonable to take the dept financial strategy as the key company policy. According to Understanding a firm’s different financing options, dept policy can be used by the S&S Recycling as soon as “a) the company has limited senior debt and a history of stable, predictable and growing cash flows; b) the Company does not see a problem in servicing the debt” (Understanding a firm’s different financing options, n. d., 4).
The Expected Outcomes: Concerning the Revenues
According to the existing data, S&S Recycling is not the only company that collects recycled material and delivers it to the local clientele; as the previous analyses show, there is also a competitive firm nearby, which means that S&S Recycling needs sufficient funds to deliver top-notch services to the clients. Since the S&S Recycling Company needs to improve the quality of its services, more money is demanded for better equipment, employees training, and advertisement campaign. Hence, S&S Recycling cannot put its financial state at stake. Once the company resorts to equity financing, it will be able to use its financial resources in the most flexible way possible (Walter, 2004) and at the same time not fear the possible failure.
Conclusion: At the Threshold of Grand Changes
With the equity financing strategy in mind, S&S Recycling will be able to control its financial resources. Moreover, the company will not be in trouble if the revenues turn out less than expected. Therefore, the equity strategy will suit S&S Recycling at the beginning.
Bragg, S. M. (2012). Financial analysis: A controller’s guide. New York, NY: John Wiley & Sons.
Understanding a firm’s different financing options (n. d.). Web.
Walter, R. W. (2004). Financing your small business. Hauppauge, NY: Barron’s Educational Series.