Overview of Sunflower Sdn. Bhd's Expansion Plans
As per the case, the Sunflower Sdn. Bhd operates as a supermarket and retail chain in Malaysia. The business is looking to expand its operations in the market and planning to make certain changes so that the business can adapt to the online mode of commerce. In order to make changes in the business operations, the management has decided to raise funds but they are unable to decide the most appropriate source which is to be considered and therefore assiatnce is being taken from the advisers of KPMG Malaysia.
As a financial adviser of KPMG Malaysia, it is imperative that each of the option is assessed from the view point of the business and its long term sustainability. The case shows that the business has debt option (directly from the bank in lieu of a real estate as security), selling of real estate for funds and making a private equity investors as a partner of the firm. The three options would be considered on the basis of their respective pros and cons and then recommendation would be given as to which source of finance should be selected (Taiwo and Benson 2016).
Debt Option: The business of Sunflower Sdn. Bhd has been a family business and has survived for three generation following its approach of maintaining a solid balance sheet. The current CEO also does not want to opt for debt option as it would bound its real estate asset and not to mention the risks which debt capital brings to the capital structure of the company (Hisrich et al. 2016). Further the funds required for to set up the online operations is immense and this would create an excessive interest burden on the company.
Sell of Real Estate Option: The business has the option to sell off its real estate property for accumulating funds so as to finance the operations of the business. This option does create any charge over the existing assets of the business nor does this raise any risks in terms of capital structure. However, the business would be required to sell off its existing property so as to generate the working capital. The real estate could be beneficial for the business for future expansion as it is a solid fixed assets whose valuation would only rise in future. It is therefore not recommended that the business opt for such an option for accumulating finances (Morello Diaz 2015).
Private Equity Investor: This is another option which the management has for accumulating funds where a private equity investor would be attracted by the scale and viability of the project so that he can make investment in the business in lieu of a partnership arrangement. This option is the most suitable for the company considering the fact that it does not create any charge on the assets of the business nor does it raises the risk level or interest burden on the company (Yuan et al. 2021). The supermarket’s business model is quite attractive and further online mode of commerce and delivery system would only add more value to the company and therefore this would help the business to achieve growth in its operations.
In an overall basis, it can be said that that private equity investors option would be beneficial as it would add more funds to the business and the risks which is associated with this option is minimum for the company.
Hisrich, R.D., PetkoviÃâ¡, S., Ramadani, V. and Dana, L.P., 2016. Venture capital funds in transition countries: Insights from Bosnia and Herzegovina and Macedonia. Journal of Small Business and Enterprise Development.
Morello Diaz, S., 2015. Activity Based Costing System (ABC): implementation in a supermarket.
Taiwo, J.N. and Benson, K.N., 2016. The role of microfinance institutions in financing small businesses. JIBC, 21(1).
Yuan, Y., Si, Z., Zhong, T., Huang, X. and Crush, J., 2021. Revisiting China’s supermarket revolution: Complementarity and co-evolution between traditional and modern food outlets. World Development, 147, p.105631.