SocialToaster is an American company specializing in developing and managing a marketing platform. In general, the company’s main activity is aimed at advertising brands using a wide range of innovative tactics and strategies. SocialToaster has been operating in the American market for more than ten years. It has achieved considerable success during this period and continues to grow actively. Nonetheless, the full implementation of this process requires a thorough analysis of the internal aspects of the business. Thus, this paper aims to analyze the financial aspects the company should consider for further development and prosperity.
The company strategy should carefully analyze and handle several concerns to entice investors: the desired sum of money and its budget breakdown, the time for recovering investments, and more. Investors will want to know that their money will be utilized wisely and that a strategy is in place to ensure this happens. Razzaque should consider making a few changes when pitching his ideas to investors. He should first give concise, direct presentations. His company’s benefits, as well as goals, and his own should be communicated, along with his strategies for achieving them.
In addition, it should be noted that using equity and debt capital has benefits and drawbacks. The advantages and drawbacks of employing equity and loan capital to fund the business are as follows. Since no fixed debt must be repaid at the end of each month, there is less risk involved, which is advantageous for new firms that face difficulties with cash flow. It helps with long-term planning since investors know the danger of not getting their money back if a firm fails and does not expect instant profits. Selling a portion of the business to investors is one way to raise equity money. As a result, the owner risks ceding control as long as the investors participate in the business’s overall decision-making process (Fahn et al., 2019). Conflicts resulting from differing views on management approaches are more likely to arise when ownership changes from a single proprietorship to a partnership.
Borrowing Money: Benefits and Disadvantages
As the connection with the lender ends with debt repayment, debt financing enables the owner to maintain control. The lender does not influence the company (Fahn et al., 2019). It is simpler to account for payment terms and interest because they are disclosed in advance. Getting a dept can be challenging for small and newly established firms since the owner has no good credit history and a strong likelihood of being able to repay the loan; too much debt negatively impacts the company’s cash flow.
For Social Toaster, there are many debt capital options accessible. Both now and in the future, the sources will aid in financing the organization’s rapid expansion. Loans are the primary form of available debt finance. The business has to approach banks and other financial organizations to ask for loans to fund its projects (Cole & Sokolyk, 2018). The corporation has additional options for buyers and sellers to whom it can sell bonds. The organization is poised for expansion, both monetarily and in other areas, in the foreseeable future. As a result, investors could be prepared to buy bonds, which will significantly aid in financing the company’s development. The two sources listed in order of possible ease of acquisition will assist in financing the company.
Social Toaster has access to several equity financing sources to finance its expansion and other business requirements. The company should look for business angel investors with more information and expertise now that he has attempted the procedure. Therefore, they will be in a better position to find an investor. Venture capital can be a second alternative for equity funding. Venture capitalists may invest in the organization’s growth if it proposes. The firm can finally list on the stock market. The organization has a chance to succeed in the stock market thanks to its promise of expansion.
The business should offer only common shares and steer clear of preferred shares when selling shares to investors. Anti-dilution and liquidation preference provisions are two other areas of financial contracts that might be problematic if not discussed before signing. The conditions, as mentioned earlier, may confer several rights on the investor, which may jeopardize the business’s and its creator’s well-being.
In conclusion, one should note that SocialToaster should focus on studying the internal components of the company to attract investors. It is also necessary to take into account the peculiarities of own and borrowed capital. However, it is essential to emphasize that the second option seems to be the most attractive for social investors. However, SocialToaster is recommended to offer ordinary but not preferred shares.
Cole, R. A., & Sokolyk, T. (2018). Debt financing, survival, and growth of start-up firms. Journal of Corporate Finance, 50, 609-625.
Fahn, M., Merlo, V., & Wamser, G. (2019). The commitment role of equity financing. Journal of the European Economic Association, 17(4), 1232-1260.