Financing Strategy Essay

There are many options for expansion for a privately held company. The Huffman Trucking Company has options to expand the operations of the business. The three best options that the firm faces are; going public through an IPO, acquiring another organization in the same industry, or merging with another organization. With each of these being a possibility, there are some aspects that must be taken into consideration. First there are strengths of the option, as well as weaknesses. Each option also comes with its own opportunities as well as threats, which must not be over looked. While there are pros and cons to any decision that will be made as far as going forward is concerned, expanding operations is imperative to staying competitive in the business world this day in age. Weighing each option will allow The Huffman Trucking Company’s decision makers to come to the best conclusion when moving forward. Going Public through an IPO An initial public offering (IPO) is a process in which a private company issues shares of stock to the public for the first time. Often times this process is known as â€Å"going public†. Regardless of how people refer to it though, it is extremely important for Huffman Trucking to consider this option for further expansion (â€Å"Encyclopedia Of Business†, 2013). The strength in this approach is that it could generate revenues that do not have to be paid back. The initial purchasers of the stock are buying a portion of the company in hopes that the value will increase. Huffman Trucking can then use those funds to purchase new equipment, hire more employees, and more importantly to expand their service area in the United States. However, there are weaknesses in this decision. The current ownership and management would lose a great deal of decision making power for the company. In an instant, the entire management team would have a group of stockholders to answer to. The knowledge savvy that got Huffman Trucking to where it is would become secondary to the whims of the stock holders. The opportunities of this approach are many, but primarily, it would put Huffman Trucking on the map. Increasing the recognition and reputation of the company can go a long way to increasing revenues. Also, going public would create a financing climate for the company that would provide even more opportunity to gain investment monies (when needed) for further growth. The major threat of this decision is that current ownership and management would be thrown out. If the stockholders felt that they knew better for the company, steps could be taken to get rid of anyone deemed detrimental to the company. This could mean that in a matter of years the original owner and every member of the original management team could be removed from the company. Acquiring another Organization in the Same Industry Another option for Huffman Trucking is to acquire another organization within the trucking industry. Huffman trucking can already credit some of its growth in the past to acquiring other businesses, though each case is different and it’s important to consider the strengths, weaknesses, opportunities, and threats associated with another acquisition. Acquiring another business can help Huffman Trucking to increase their efficiency and business. This is a known strength for acquiring another business, because they already have a location that they cover as well as a customer base, and their name is known, associating Huffman Trucking with that name will help their customers feel comfortable offering their business to Huffman. Depending on how Huffman is already staffed, a weakness of acquiring another business could be bringing on to many employees, or even having to let some of that company’s current employees go. If Huffman brings on those employees they have to make sure they have enough business to pay for all of their labor, and if they have to terminate those employees it can give the company a negative public image for cutting jobs. There are countless opportunities when acquiring another company in the same industry. It all depends on how the specific company handles the acquisition. One major opportunity is unlimited growth, if the acquisition goes well for both companies than Huffman will probably have the chance to acquire other businesses within the same industry and continue to grow. A threat would be that there is really no guarantee how the other company will handle the acquisition. There could be negative publicity or issues with current employees if Huffman doesn’t handle the situation appropriately from the beginning. Merging Organizations Many times, a company like Huffman Trucking potentially can build strength by merging with other organizations. Careful consideration and planning needs to take place before simply diving into any venture; however, if the company were to mesh itself with a company that is already holding itself upright, Huffman Trucking potentially could have more to offer its customers. In combination with the diverse services Huffman already provides, it can expand on these services. Especially, if Huffman aligns itself with another well-known company, consumers could still get their needs met by the former company while also being introduced to the products and services offered by Huffman. In relation, if Huffman shares nearby territories with other companies that offer similar services, it may be a wise move to merge the companies into one entity. â€Å"It is smart to merge with, successful companies if the services complement each other. The acquiring company would have access to a new market and an already established customer base† (NFIB, 2013, P. 1). In this instance Huffman would serve as the main headquarters; the head honchos taking over. Combining similar companies together potentially can ignite more power as a union, reinforcing the strength in numbers concept. â€Å"Merging is a way to encourage growth; it can be looked upon as a way to open up new channels and new markets† (NFIB, 2013, P.1). Occasionally companies experience down times, mostly because of market trends. On their own, they simply would lose steam and eventually fade into financial despair, unless another company chooses to offer a life raft. In these instances, a large company may swoop in and â€Å"buy† out the struggling company. The endeavor can prove to be fruitful if the larger company is successful at not only turning around profits for the struggling company but also building onto its own. Acquiring additional assets also helps to make a large company â€Å"look† better to investors. Huffman Trucking initially may desire to keep everything the â€Å"same.† It may even promise that employees will not lose their jobs. The reality, however; for any successful merger, is that change is inevitable and some employees will be let go. If Huffman attempts to retain too many employees it sets itself up for failure as the synergy processes can become strained. Within a given organization, only so many associates are needed to fill the necessary departments. The action of merging with other companies automatically reveals the existence of several different â€Å"departments† of employees doing the same type of work. Huffman will have to determine how many workers are â€Å"needed† to fill these positions and then layoff, or relocate the rest. Larger companies merging with other large, successful companies may merge more smoothly with minimal layoffs, and such a condition would be ideal. The merging endeavor could unfortunately cause a temporary downward trend in stock prices. Huffman may be tempted to get cocky with prices because it is now owner of many smaller entities. It may would reason that since it offers products widely sought by consumers that pricing rests solely within their whim. Consumers, however, â€Å"may rebel when confronted by increased costs as they seek cheaper product alternatives within the marketplace† (Rimm & Media, Wint). The opportunities are numerous when a merger is successful. Two well-financed, profitable companies potentially can exponentially increase their net worth by joining forces. Keeping lines of communication open among the entire company promotes enthusiasm from workers old and new. Acquiring companies can benefit from the broader customer base; in conjunction it can often decrease expenses as they produce more of their own brand. Although the reality exists that some employees will be let go, there also lays potential risks. â€Å"Customer service may suffer as employees feel less motivated to go out of their way to help clients and shoppers† (Rimm & Media, Wint). A gradually weakening workforce fueled by employee stress and weakened morale will eventually affect the face of the entire company. Many merger efforts actually discourage employees from seeking employment elsewhere, as they want the merger process to unfold smoothly. This is no way guarantees job security for workers long-term. Consequently, some employees will be intolerant toward the unknown. They feel unmotivated. Turnover is sure to spread among departments. As departments begin to weaken, remaining workers may start to feel the squeeze of added work load. During the merger, the company is unlikely to hire replacement workers right away. The overall spirit within the company may slowly deteriorate as result. Another potential threat is an already weak company deciding to merge with another weak company, assuming that combining the two will induce success. Two broke companies will seldom find success together. More than likely, they simply will fail as one unit. Huffman Trucking should consider several factors when choosing to pursue an international location. Financial decisions for Huffman Trucking will be affected by the decision to branch out into international markets. The usual factors that Huffman Trucking takes into consideration in the planning efforts of supply and demand will include new risks. These risks will â€Å"include unanticipated commodity price shocks, volatile exchange rates, and unexpected supply disruptions as a result of forces beyond our controls, such as physical disasters and terrorist attacks† (Neuman, 2005). The company should consider interest rates as this will affect the exchanges from one currency to another. Employment levels and economic growth expectations will also potentially affect exchange rates. Rising unemployment in another country could bring the value of that country’s currency down, thus creating a less favorable exchange rate. The same is true for general economic conditions. If a country’s economy is not growing interest rates are likely rising and potentially affect exchange rates as well. Another factor Huffman Trucking should consider when choosing a location for potential international expansion is the trade balance of the other country as well as its political and regulatory structure. A country wants to maintain a positive trade balance to keep a favorable demand for its currency. The political structure within a foreign country needs to be strong to help protect the investments of Huffman Trucking. The foreign country should possess clearly defined regulations. Strong regulations will also help protect the company’s investments. These critical factors will aid Huffman Trucking is determining where international expansion aligns with their operations. Each of the choices before Huffman Trucking are valid and each has its own strengths and weaknesses. It is important to note that expansion is an important part of successful business, but not necessarily a requirement. Huffman Trucking must decide if negative side effects of any of these choices is worth the gain.