Mini-Case
Tishian's Funeral Home has been in business for over eighty years. Throughout its history, the firm has been a family-run operation. Today, the business is managed by Mort Tishian, a grandson of the founder. Unfortunately, Mort Tishian's tenure has been plagued with problems neither his father nor grandfather before him experienced. The reason is simple: the funeral business is undergoing rapid change. Small, family-owned funeral homes are losing ground to a new type of competitor, a large national network service that resembles a franchise system. More and more families "in their time of need" are choosing the new, highly promoted competitors instead of the traditional small familyoperated funeral homes.
This trend has required a response from organizations like Tishian's Funeral Home. Bigger and better facilities are needed to remain competitive. All of this puts more pressure on the family-owners to be more active in the financial side of the business. Mort summed it up best when he said, "Grandpa told people, 'you pay me when you can, I ain't goin' nowheres.'" His creditors did the same with him. Today, it's a different game. Cash flow is key, and obtaining funds is no simple task. Additionally, creditors want their money now, not later. Banks are also more demanding. "Heck, Grandpa knew all the bankers he dealt with personally. I see new faces every time I go to the bank. If things don't get better, I suspect after eighty years of service, Tishian's Funeral Home will have its own funeral."
-After seeing Mort's advertisement: "You Aren't Gettin' Any Younger! Start Planning for Heaven Today!" a firm decided the aging population was a good investment. Although they typically look at start-ups with great promise, they approached Mort with $6 million dollars for a major three-city expansion that included six new funeral homes, a crematory, and mausoleum. After researching the idea, Mort agreed to give-up 50% ownership of the business in order to secure these funds. His last thoughts as he began to sign the papers were: "Now, I'll be able to compete with the big guys!"

Question

Quizplus · Accepted Answer

The best choice for the source of funding in this scenario is venture capital, as the firm is looking to invest in a start-up with great promise. The offer of $6 million dollars for a major expansion aligns with the typical investments made by venture capital firms. The fact that Mort agreed to give up 50% ownership of the business also supports this choice, as venture capitalists often require equity in exchange for funding. Retained earnings are profits that a company chooses to keep instead of distributing as dividends, and would not provide enough funding for a major expansion. Indentured refers to a type of labor contract, and leveraged buyout involves the acquisition of a company using borrowed funds. These options are not applicable in this scenario.

Mini-Case Tishian's Funeral Home Has Been in Business for Over Eighty